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The euro surged by 0.7% to $1.0560 on Thursday, hitting its sharpest rise in four months. The rally followed hawkish remarks from European Central Bank (ECB) board member Isabel Schnabel, who suggested that any rate cuts should be gradual and lead the ECB to a neutral stance, rather than an accommodative one.
As a result, investor sentiment shifted away from rate cut expectations, propelling the euro higher.
Picture: EUR/USD surges to a four-month high as ECB signals gradual rate cuts; resistance eyed at $1.06, as seen on the VT Markets app.
The EUR/USD is now testing $1.0560, with potential resistance around $1.06, which could be tested further if German inflation data—due later in the session—comes in stronger than expected.
Despite these gains, the euro is facing technical resistance just above the current level, which could limit further upward movement in the short term.
If inflation in Germany surprises to the upside, it could reinforce the view that the ECB will continue to hold a hawkish stance, supporting the euro further.
Meanwhile, the yen continued its rally, advancing to 151.50 against the dollar, breaching its 200-day moving average. The USD/JPY pair was slightly weaker in Asian trade, hovering around 160 per euro.
Market participants are now pricing in a 60% chance of a 25-basis point rate hike by the Bank of Japan (BoJ) in December, up from around 50% just a week ago.
See also: Yuan Climbs as Tariff Threats Amplify Pressure
This shift in expectations comes from stronger-than-expected Japanese inflation readings and the growing possibility that the U.S. Federal Reserve may ease policy in December, further pressuring the dollar/yen to the downside.
The U.S. dollar faced downward pressure after strong gains earlier in the week, as the U.S. Thanksgiving holiday loomed. The decline in U.S. Treasury yields added to the downward momentum for the greenback.
Data on U.S. personal consumption expenditure (PCE), which came in line with expectations at 0.2% growth month-on-month, was not enough to reverse the dollar’s weakening trend.
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