EUR/USD abandons recent rally as markets retreat dollar’s selloff

The EUR/USD pair reached an 18-week high on Friday, but slipped back towards 1.1000 as markets wind up operations before heading into the holiday break.

The US dollar is declining as investors anticipate rate cuts due to slowing inflation in the US. The Core Annualised PCE Price Index for the month of November was 3.2%, which was lower than the 3.3% estimate and lower than the 3.4% YoY print from October.

Because inflation indicators are dropping, money markets are pricing in a higher rate of rate decreases from the Fed until 2024. Investors are now pricing in rate cuts of up to 160 basis points, ahead of the Fed’s projections. Some are even wagering that the cycle will start in March.

A 5.4% gain in US Durable Goods Orders for November, compared to a -5.1% decline in October, slowed the momentum of the USD-short market. The Greenback is currently down around 0.3 percent versus the Euro, and positive close guarantees that the EUR/USD pair will remain positive for the next seven trading weeks.