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EUR/USD's recovery extends beyond 0.9800 as the US dollar loses momentum

  • The euro picks up and returns to levels above 0.9800.
  • Speculation about a shorter Fed hike in December has hit the USD.
  • EUR/USD seen declining to 0.9300 in Q1 2023 – Nordea.

The euro has shrugged off the previous sessions' weakness during Friday’s US trading. The pair has regained lost ground after bouncing at 0.9705 lows earlier today and is struggling to consolidate above 0.9800 at the moment of writing.

The US dollar dives with all eyes on the Fed

A news report by the Wall Street Journal pointed out on Friday that Federal Reserve officials are likely to open a debate on how to signal a smaller rate hike in December. The US dollar has reacted with a sharp reversal from session highs. 

The US Dollar index, which measures the value of the US dollar against a basket of the world’s most traded currencies, has plummeted more than 1%, from three-week highs near 114.00, to the mid-range of 112.00.

WSJ’s report has offset the positive impact on the US dollar generated by the hawkish tone of the Fed officials' recent comments. Philadelphia Fed President Patrick Harker reiterated on Thursday that the bank will "keep raising rates for a while."

Beyond that, initial jobless claims increased below expectations last week, according to data released on Thursday,  confirming the tight labor market conditions and paving the path for the Fed to maintain its aggressive tightening cycle.

EUR/USD, seen bottoming at 0.9300 during Q1 2023 – Nordea

Currency analysts at Nordea expect the euro to continue depreciating to hit 0.9300 in 2023: “We believe the USD will continue to do well in the months to come due to the hawkish Fed conducting the fastest rate hikes in decades, a resilient US economy, and USD’s safe haven in these troubling times. This will bring EUR/USD to 0.93 during Q1.”

Technical levels to watch

 

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