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  • Soft USD conditions exacerbated by a risk on market feel has driven EUR/USD to fresh multi-year highs above 1.2250.
  • Brexit hopes might also be helping the cross; the UK PM and EU Commission President talk on the phone at 19:00GMT.

EUR/USD has continued to push higher throughout the day on Thursday and has crossed above the 1.2250 mark in recent trade. At present, the pair trades with gains of over 0.5% or nearly 70 pips on the day.

EUR/USD rallies as a result of soft USD conditions

It’s been an ugly day for the US dollar. Multiple factors have been working against it, including; 1) Fed Chair Powell’s dovish tone in the post-meeting press conference, 2) a continued pumping of hopes that deals can be reached on further US Covid-19 aid and a Brexit deal and 3) recently released soft US labour market and manufacturing survey numbers which have triggered increased bets for more Fed stimulus in January and 4) a drop in US real interest rates driven by an increase in inflation expectations. As a result, the Dollar Index (DXY) has slumped below the 90.00 level for the first time since April 2018.

While EUR has not been the number one beneficiary of this (GBP, AUD and NZD all sit above the euro in the G10 FX performance table), it is still enjoying a decent ride on the USD weakness wave. Those three currencies are all being propelled higher by domestic fundamental impulses; AUD has benefited from strong labour market data and a solid government fiscal update (more here), NZD has benefited from strong Q3 GDP data and comments from the country’s Finance Minister on NZD valuation (more here) and GBP is benefitting from Brexit hopes.

Arguably, though these Brexit hopes are weighing on the EUR/GBP cross (which is down around 0.2% or 20 pips), they are assisting EUR/USD’s rally. Indeed, a Brexit deal is not only a positive for the UK economy but also the Eurozone. In terms of the latest;

UK PM Boris Johnson and EU Commission President von der Leyen are to hold a call at 19:00GMT. There is no indication that negotiators have crossed the finish line for a deal just yet, so market commentators are speculating that the call will be another “stock check”.

But reports on the state of negotiations have generally been good; Germany reportedly sees the UK “moving” in talks, and despite reiterations by the UK PM and other UK officials that a no-deal is still the most likely outcome, EU sources on Thursday said a trade deal with the UK is “fairly close” and could be done by the end of the weekend. EU Brexit Negotiator Barnier also sounded upbeat. The UK has even started drafting legislation that would allow swift passage of a Brexit deal prior to the end of the year, according to reports.