- Currency set for first annual gain versus greenback since 2020
- To be sure, euro appears overbought, Monex USA trader says
The euro rose to its highest against the greenback since the end of July as signals from the Federal Reserve that it will pivot to rate cuts have continued to support a risk rally.
The common currency climbed as much as 0.3% to 1.1070 on Wednesday, one of the biggest gainers in the Group-of-10. The euro has advanced 3.4% this year, with much of the rally coming in the past few weeks since the Fed’s latest commentary.
The greenback extended losses this month after the Fed gave the clearest signal yet that its aggressive hiking campaign is finished, forecasting a series of rate cuts in 2024. US economic reports have showed inflation slowing and labor markets cooling off.
“Yields are lower, equities are higher, risk is on and the markets are looking forward to Fed easing as soon as Spring arrives,” said Kit Juckes, chief foreign-exchange strategist at Societe Generale in London.
The yield on 10-year German debt fell to a one-year low. German bonds have rallied since late October as soft euro-area economic data and a slowdown in inflation suggest the European Central Bank won’t hold rates high for much longer.
Still, the euro’s advance may be limited, according to Helen Given, an FX spot trader at Monex USA.
“The holiday rally will fade a bit heading into the first quarter,” she said. “The euro appears to be quite overbought, and with the German economy on the brink, it appears that the danger of a regional recession is quite a bit higher there than it is here in the US.”
As for the dollar, there’s also a strong seasonal tendency for it to weaken at the end of the year due partly to corporate activity.
