Euro extends gains to three-month trough, approaching $1.1

Euro rose in European trade on Monday against a basket of major rivals, extending gains for the third straight session against the dollar, scaling a three-month high and approaching the $1.1 barrier.

Such gains come as concerns about the the widening interest rate gap between the US and Europe diminish, with analysts now expecting both the Federal Reserve and the European Central Bank to maintain interest rates unchanged next month.

EUR/USD

EUR/USD rose 0.3% to $1.0940, the highest since August 30, after rising 0.5% on Friday, the second profit in a row as the dollar suffers widespread losses against rivals. 

Euro rallied 2.1% last week against the dollar, the second weekly profit in three weeks, and the largest since July.

A spate of weak US inflation and labor data hurt chances of another US interest rate hike next month. 

Interest Rate Gap

The current interest rate gap between Europe and the US stands at just 100 basis points, the lowest gap since May 2022, and will likely remain so until the first quarter of next year.

Most analysts expect no change in US and European monetary policies when both the Fed and the ECB hold periodic meetings in December. 

The $1.1 Barrier 

Euro is a few cents away from touching the $1.1 barrier as the new week opens up with strong risk appetite, following a spate of weak US consumer and producer prices data that pummeled the odds of another US interest rate hike in December to just 1%. 

The Fed is all but certain now to end the current cycle of policy tightening and prepare for the next step, which interest rate cuts next year.

European Economy 

Economists are warning that the European economy is heading to a mild recession, likely in the fourth quarter of 2023, and potentially in early 2024 as well.