EURUSD’s rally extends beyond 1.0300 with the Dollar in free fall

• The Euro rallies further and hits fresh three-month highs above 1.0300.
• Hopes of softer Fed rate hikes have hammered the Dollar.
• EUR/USD might reach 1.05 but it is seen at 0.97 in three months – Nordea.

The Euro remains strongly bid for the second consecutive day against a weak US dollar. The pair has breached the 1.0300 level to reach fresh three-month highs and approach August’s peak at 1.0365.

Soft US inflation figures have sent the Dollar plunging

The common currency has rallied beyond 3% over the last two days, with the US dollar hammered by a softer-than-expected US inflation report released on Thursday, and is on track to close its best weekly performance in more than two years.

Consumer prices accelerated at a 7.7% yearly pace in October, down from the 8.2% increase posted in September and well below the 8% reading forecasted by the market. These figures suggest that inflationary pressures are starting to ease, which clears the way for the US Federal Reserve to lift its feet off the rate hike accelerator over the next month.

Hopes of some Fed easing have boosted risk appetite, which has favored equity markets, triggering sharp declines in the US Dollar and US Treasury bonds.

Beyond that, news reporting that the Chinese authorities have decided to relax their strict COVID-19 restrictions and shorten quarantine periods have eased fears about a new set of lockdowns next winter and boosted market sentiment further.

EURUSD might reach 1.05 but it is seen at 0.97 in three months – Nordea

Analysts at Nordea Bank, however, are skeptical about the sustainability of the current Euro uptrend: While EURUSD could rise until the start of December, we still see a lower EURUSD at 0.97 in three months (…) The Fed's fight against inflation is still not yet over given the high wage growth and tightness in the labor market (…) The interest differentials between EUR and USD are likely to move in favor of a lower EURUSD.

Technical levels to watch