Euro continues to rise on risk appetite and a weak US dollar.
Following a long Christmas weekend, the Euro (EUR) is trading with a slight bullish tone in Wednesday’s European session. The pair is trading at 1.1000. As investors rejoice at the end of the global tightening cycle. Which is expected to support economic growth and reduce the odds of a deep recession next year.
Last week’s data in the United States shows that inflation is rapidly declining. The Fed’s preferred inflation barometer. The Personal Consumption Expenditures (PCE) Prices Index, fell to its lowest level in nearly three years.
A dimmer outlook for US economic growth and weakening inflationary pressures are fueling expectations of Fed rate decreases.
Furthermore, the third quarter US GDP was revised down to a 4.9% increase over the same period last year. Which was lower than previous estimates of 5.2%.
These statistics reflect the soft landing rhetoric of slower growth. And lower inflation, which fuels expectations that the US Federal Reserve would begin cutting rates in early 2024. This is increasing investors’ appetite for risk and impacting on the US Dollar.
Daily market movers: Fed rate cuts are weighing heavily on the US dollar.
The Euro has held steady at four-month highs. As the Dollar continues to fall on expectations of Fed rate reduction.
Last The US PCE Price Index fell to 2.6% year on year last week, from a downwardly revised 2.9% in October.
The Core PCE Prices Index, which excludes the influence of seasonal products such as food and energy, fell to 3.2% from 3.4% in October. Nonetheless, it was lower than the 3.3% projected and significantly lower than the 5.6% peak recorded in April 2022.
The Core PCE Price Index, which excludes the influence of seasonal products such as food and energy, is expected to expand steadily at 0.2% and fall to 3.3% from 3.5% last year.
These findings have fueled investor expectations of Fed rate cuts in early 2024. Futures markets are pricing in more than 70% of a quarter-point rate drop in March and 150 basis points in April. According to CME Group’s FedWatch Tool.
US Treasury yields continue to fall, with the benchmark 10-year yield at 3.85%, more than 100 basis points lower than the 5% top achieved in late October. This puts more downward pressure on the US dollar.
This week’s schedule is light, and the optimistic mood may help the Euro before the emphasis shifts to crucial Eurozone macroeconomic reports.
