Euro tumbles to a one-year low as US releases inflation figures

The euro continued to weaken against the US dollar, reaching its lowest level in one year after the United States released the October Consumer Price Index (CPI), which revealed an increase in inflation from the previous month. The EUR/USD pair dropped to 1.0546 at 4:52 am CET on Thursday, the lowest level seen since 1 November 2023. Firming US inflation, along with Trump's recent election victory, has weighed heavily on the euro, causing a 5.7% decline against the dollar since the end of September.

On Wednesday, the US Republicans narrowly secured a majority in the House, giving Trump's party full control of Congress, thereby increasing the likelihood of his policies being enacted. This has added to concerns about inflation risks, pushing up the US government bond yields and adding further strength to the US dollar.

In October, US headline inflation rose by 2.6% year-over-year, up from 2.4% in the previous month, marking the first increase since March. Meanwhile, core inflation, which excludes volatile food and energy prices, rose by 0.3% month-over-month and by 3.6% year-over-year, marking the fastest rate of increase since April.

This data suggests that inflation pressure in the United States remains persistent, signalling that the Federal Reserve's fight against inflation may not be over. Despite this, markets still expect the Fed to implement another rate cut in December, though the cut may stay modest at 25 basis points.

In September, the Fed delivered a large 50 basis-point rate cut due to concerns over a cooling labour market and slowing inflation. The rate cut initially weakened the dollar, allowing the euro to rise to a 14-month high. However, with the US job market remaining resilient, inflation staying firm, and