The euro is at the highs of the day as it rebounds following three days of selling. The gains are mostly driven by the US dollar slide as it retraces following a long run. Treasury yields are down today with US 10s lower by 5 bps to 4.19%.

Zooming out further, the euro has dug itself into a big hole since late September and there are calls for new lows before year end.

To their credit, ECB policymakers this week are widely acknowledging that inflation will be lower than they thought. What needs to come with that is an acknowledgement that they’re behind the curve and need to cut rates by 50 basis points at successive meetings or risk dismal growth in 2025 (and beyond as fiscal excess is reigned in).

We’re in a regime right now — I believe — where early aggressive rate cuts will see currencies rewarded. That’s exactly what has happened with the US dollar in the past month. However as time goes on, that window of opportunity is closing, particularly for the ECB.

So I take this bounce in the euro as a standard overbought bounce. Nothing in the data suggests a pickup or one that’s coming. The best hope for EUR/USD bulls is the US dollar side of the equation. This pair bottomed yesterday after the Beige Book continued to highlight poor economic growth in the US, something that hasn’t appeared in the data yet.