The euro weakened to around 1.1445 against the dollar in early Asian trading on Wednesday, pressured by hawkish Federal Reserve signals and rising German political risk. Boston Fed President Susan Collins said on Tuesday she supported the US central bank's decision last week to raise interest rates, warning of an increased likelihood that inflation remains notably above the 2% target, while St. Louis Fed President Alberto Musalem said earlier in the week that additional rate increases may be necessary. The Fed last week raised its interest rate target by 25 basis points to the 3.75%-4.00% range and policymakers penciled in another increase before year-end, with traders now pricing in nearly an 89.2% chance of a US rate hike in December according to the CME FedWatch Tool. In Germany, the far-right Alternative for Germany party secured major wins, handing Chancellor Friedrich Merz's conservative coalition its worst regional election defeat in postwar Germany and leaving the government fragile. Traders are bracing for preliminary Purchasing Managers' Index readings from Germany, the Eurozone and the US due later on Wednesday.
Fed's Collins backs last week's hike and December odds rise to ~89%, implying a higher policy rate.
Hawkish Fed signals and rising December hike odds push Treasury yields higher.
Hawkish Fed vs German political risk weakens the euro against the dollar.
