Euro heads towards 6 month high

The EUR/USD is moving about on Thursday as holiday-thinned markets churn rounding the corner into the last trading day of 2023.

The Euro (EUR) briefly rose to a 21-week high of 1.1140 early Thursday as broader markets sell off the US Dollar (USD) in anticipation of rate cuts from the Federal Reserve (Fed), but overheated market expectations of a structural pivot from the Fed have run well ahead of the present day, and an uptick in 7-year US Treasuries has sparked a pullback into the safe haven USD, pushing riskier assets like the Euro back into the red during 2023’s second-last trading day.

US Initial Jobless Claims for the week ended December 22 also ticked higher, showing 218K new jobless benefits seekers versus the previous week’s 206K (revised from 205K). US Pending Home Sales in November also flubbed market expectations, coming in flat at 0.0% and missing the market’s forecast 1.0% rebound from October’s -1.2% decline (revised upwards from -1.5%).

US data misses fuel risk rally, rising Treasury yields end it

Data misses from the US initially sparked a risk appetite run as softening economic indicators from the US increases the odds of pushing the Fed into a rate-cutting cycle sooner rather than later. However, a misfire in a US 7-year Treasury auction is watering down risk appetite ahead of the Thursday closing bell.

US 7-year Treasuries hit a high yield of 3.859% in a $40 billion note auction on Thursday afternoon, rising from the previous yield of 3.857%, and runaway rate cut expectations are crashing against a hard wall of near-term reality as softening economic data sends jitters through bond markets.

Friday marks the last trading day of the 2023 calendar year, and with Eurozone data entirely absent from the calendar this week, will wrap things up with the US Chicago Purchasing Managers’ Index (PMI) for December, forecast to decline from 55.8 to 51.0.