EUR/USD: Euro Seeks Higher Grounds After Fed-Fueled Dollar Rally Eases Grip on Forex

European currency is getting a breather after it got demolished last week as a flurry of events conspired to knock the wind out of it.

• The EURUSD pair held steady Monday morning after it jumped about 0.8% Friday to cap a tumultuous week with a flurry of events that weighed on the euro. Earlier today, a euro was going for about $1.0450, slightly higher than Friday’s closing price of $1.0429. Forex traders are now shifting their gaze to a Holiday week of celebrating Christmas and figuring out what to say to the family so they sound smart on the festive table.
• If you’re a euro bull, you don’t get much bragging rights. The old continent’s currency is languishing near a two-year low after the Federal Reserve said last week interest rates will stay higher for longer. Fed boss Jay Powell dashed hopes of a continued aggressive rate-cutting cycle when he said officials were planning to do just two cuts to borrowing costs, down from a prior projection of four. What’s that got to do with the euro-dollar?
• Interest rates are a strong underlying factor that contributes to a currency’s valuation. In this case, the greenback will get to yield more for longer due to interest rates staying elevated. The euro, on the other hand, isn’t getting any backing from its central bank. The European Central Bank doesn’t consider inflation a threat anymore and wants to jump start an ailing economy through more trims to borrowing costs next year.