- EUR/USD moves back closer to a multi-month top, though lacks follow-through.
- A modest USD recovery is seen as a key factor acting as a headwind for the pair.
- Bets for less aggressive Fed rate hikes, a positive risk tone should cap the buck
- Traders also seem reluctant ahead of crucial central bank meetings next week.
The EUR/USD pair gains some follow-through traction on the last day of the week and inches back closer to a multi-month top set on Monday. The uptick, however, runs out of steam ahead of the 1.0600 mark, dragging spot prices to the lower end of the daily range, around the 1.0560-1.0555 area during the first half of the European session.
The US Dollar stages a modest recovery from a multi-day low touched earlier this Friday and turns out to be a key factor acting as a headwind for the EUR/USD pair. That said, the uncertainty over the Fed's rate-hike path should keep a lid on any meaningful upside for the greenback and continue lending some support to the major, at least for the time being.
The incoming positive macro data from the United States has been fueling speculations that the Federal Reserve might raise interest rates more than estimated. However, the recent comments by several FOMC members, including Fed Chair Jerome Powell, suggested that the US central bank will slow the pace of its policy tightening. In fact, the markets have been pricing in over a 90% chance of a relatively smaller 50 bps rate hike move by the Fed in December.
Apart from this, a generally positive tone around the equity markets could undermine the safe-haven greenback and contribute to limiting the downside for the EUR/USD pair. Despite the aforementioned supporting factors, any meaningful rally seems elusive amid diminishing odds for another supersized 75 bps rate hike by the European Central Bank (ECB). Hence, the focus will remain glued to next week's key central bank policy meetings.
In the meantime, traders on Friday will take cues from the US economic docket, featuring the release of the Producer Price Index (PPI) and the Prelim Michigan Consumer Sentiment Index. This, along with the US bond yields and the broader risk sentiment, might influence the USD price dynamics and provide some impetus to the EUR/USD pair. Nevertheless, spot prices remain on track to post modest gains for the third successive week.