Possible rate cuts boost Euro

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 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.