Euro Surges Past 1.1500 on Post-Fed Dollar Selloff

The Euro to Dollar exchange rate rose above 1.1500 in July, driven by a post-Federal Reserve selloff of the US dollar. This move was largely due to the decline in US real rates following the Fed meeting, which lowered inflation-adjusted yields and weakened one of the key supports for the dollar.

Danske Bank attributed this shift to markets reassessing Kevin Warsh's commitment to bringing inflation back to target, leading to a reevaluation of US monetary policy. The bank noted that this effect was not limited to the Euro, with other risk-sensitive currencies also benefiting from easier financial conditions.

Despite this recent move, Danske Bank still expects further US rate increases and sees sticky inflation, resilient activity, and potential tightening by the Fed as key drivers of dollar strength in the medium term. However, the immediate risk is a continued decline in US real rates, which would put pressure on the bank's short EUR/USD recommendation.

The technical backdrop has improved, with EUR/USD moving above both its 20-day and 50-day moving averages after spending much of July below them. A sustained hold above 1.1500 could bring the 1.1600-1.1665 region back into focus.