EUR/USD rallied above August's monthly high then struck a 14-month peak as investors returned to expecting the Fed to cut more aggressively than the ECB especially in the early stages of their rate cutting cycles.

Recent euro zone data has investors leaning towards the ECB cutting by 25bps again in October but investors are pricing in greater probability the Fed will cut by 50bps in November.

The CME FedWatch tool indicates a greater than 60% probability for a 50bps cut Nov.
7.
That probability is up from 37% last week and near 58% just yesterday. Click here

Short-term rates markets reinforce those probabilities.
SOFR futures price in nearly 170bps of Fed cuts out to Q2 while Euribor futures discount roughly 100bps of cuts from the ECB.

The dollar's yield advantage over the euro is deteriorating again as well.
German-U.S.
2-year spreads US2DE2=RR tightened to -139bps Wednesday after they widened from -132bps to -145.6bps Sept.
20 to 24.

The rate complex differentials helped EUR/USD rally to its fresh high.

U.S.
weekly and continuing claims on Thursday and August PCE will on Friday give the latest reading on employment and pricing in the U.S.

Data indicating jobs and pricing are softening could tighten the rate differentials further which may send EUR/USD higher.

For more click on FXBUZ