EUR/USD tests above 1.1000 as markets bet big on Fed rate cuts

EUR/USD pierced 1.1000 on Thursday as broad-market risk appetite pins into the high side.
US inflation figures point to continued price growth deceleration, ramping up rate-cut bets.
Friday poised to wrap up the trading week with a final round of US PCE inflation.

The EUR/USD climbed on Thursday, bolstered back into the 1.1000 handle as broad-market risk appetite pinned into the high side, fueled by US inflation figures continuing to decline faster than market forecast models can account for. Investors are increasing their bets that the Federal Reserve (Fed) will face faster, deeper rate cuts, with money market expectations running far ahead of the Fed’s own rate expectations for 2024.

The Fed’s dot plot of interest rate expectations currently sees 75 basis points of rate cuts by the end of 2024, and money markets have deeply repriced their rate forecasts for next year, projecting upwards of 160 basis points through 2024, with many investors banking on rate cuts beginning as soon as next March.

US inflation continues to cool faster than expected, ramping up rate cut hopes

US Core Personal Consumption Expenditures (PCE) rose 2.0% in the third quarter versus the second quarter’s 2.3%, slipping below the median market forecast of a hold at 2.3%.

US Annualized Gross Domestic Product (GDP) also grew at a slower pace in the third quarter than markets were forecasting, coming in at 4.9% over the third quarter last year, missing the market expectations of a hold at 5.2%.

Friday sees the US’ last inflation print of the year with the US PCE Price Index expected to tick lower from 3.5% to 3.3%, and another miss in inflation numbers will likely see markets pin rate cut hopes even higher than they already are.

EUR/USD Technical Outlook

EUR/USD’s climb into the 1.1000 handle has the pair testing into last week’s peak bids, and the pair is up over one percent from the week’s low bids at 1.0888.

Intraday price action continues to bid well above the 200-hour Simple Moving Average (SMA) rising into 1.0900, and near-term technical resistance remains thin as the pair takes a run at November’s peak of 1.1017.