The Euro appreciates further as the Dollar falls ahead of the ECB decision

: George Solotarov; 14 December 2023; Hits: 166

The Euro appreciates further as the Dollar falls ahead of the ECB decision

The Euro (EUR) keeps a positive tone on Thursday, extending gains beyond the 1.0900 mark, boosted by US Dollar’s (USD) weakness after the Federal Reserve (Fed) signaled the end of rate hikes on Wednesday. The Fed surprised investors with an unexpectedly dovish tone. The bank kept interest rates unchanged, as expected, but Fed Chair Jerome Powell suggested that interest rates have peaked with 17 of the 19 policymakers projecting rate cuts in 2024.

Risk appetite surged after the decision and the US Dollar was sold across the board. The Euro rallied more than 100 pips higher to fresh two-week highs right above 1.0900, where the pair has steadied ahead of the European Central Bank’s (ECB) decision due later on Thursday. The ECB is expected to leave its main refinancing operations rate on hold at 4.5% and keep a hawkish stance, leaving the door open for further rate hikes if inflation pressures remain high. Investors, however, will be looking for dovish hints as the weaker economic outlook and declining inflation are posing a challenge for ECB hawks. EUR/USD maintains a near-term bullish tone after Wednesday’s sharp rally as the US Dollar licks its wounds.

The US Dollar Index (DXY) seems unable to put a significant distance from the 102.50 support area. A look at the 4-hour charts shows the pair standing comfortably above the main SMAs, with oscillators at overbought levels, and a resistance area at 1.0915 holding bulls ahead of the outcome of the ECB’s meeting. If the bank manages to convince investors that rate cuts are off the table, we might see a further rally towards 1.0960, which closes the path to November’s peak at 1.1010.