Euro looks strong above 1.10

The EUR/USD climbed into an 18-week high at 1.1040 before slipping back towards 1.1000 as markets wind up operations before heading into the holiday break. US inflation missed the mark on Friday, printing below expectations and keeping investor expectations of Federal Reserve (Fed) rate cuts accelerating in 2024.

Read More: US PCE inflation softens to 2.6% from a year ago vs. 2.8% expected

US Personal Consumption Expenditure (PCE) Price Index softened more than expected on Friday with the Core Annualized PCE Price Index for the year through November printing at 3.2%, below the forecast 3.3% and even further back from October’s YoY print of 3.4% (revised down slightly from 3.5%).

Money markets are ramping up their expectations of a faster pace of rate cuts from the Federal Reserve (Fed) through 2024 on the back of inflation metrics that continue to decline faster than most models can predict. Investor expectations have now run far ahead of the Fed’s own rate expectations looking forward, with money markets pricing in upwards of 160 basis points in Fed rate cuts, with some betting the rate cut cycle begins as soon as next March, while the Fed’s dot plot of interest rate expectations only sees 75 basis points in reductions by the end of 2024.

The market’s USD-short momentum was limited by a beat in US Durable Goods Orders, which printed at 5.4% for November versus October’s -5.1% (revised up slightly from -5.4%), showing the US economy may still be firm enough that the Fed might get away with fewer rate cuts than many expect.