The EUR/USD pair is extending its upward momentum.

On Friday, the primary currency pair surged even higher, with the current EUR/USD exchange rate at 1.0990.

Optimism permeates the market, and the appetite for risk is driving the Euro's strength while diminishing the appeal of the USD as a safe-haven asset.

The European Central Bank's December meeting concluded as expected, maintaining a neutral stance. Interest rates were held steady, with the key rate at 4.50% per annum and the deposit rate at 4.00%. In its commentary, the ECB underscored its commitment to sustaining rates at a restrictive level.

The ECB's primary objective is to steer inflation back to its 2.0% target over the medium term. Keeping a high interest rate for an extended period is deemed crucial to achieving this objective.

Simultaneously, inflationary pressures in the region are easing. The ECB has adjusted its expectations for 2023 and 2024, forecasting core inflation at 5.0% in 2023 and 2.7% in 2024. GDP growth is expected to be 0.6% and 0.8%, respectively.

The ECB continues to shrink its balance sheet, refraining from reinvesting funds from maturing securities. The reinvestment process is set to be completed by the end of 2024.

In essence, the European Central Bank has conveyed that, while there are no immediate reasons to lower the interest rate, it remains a possibility for the future. This messaging has been perceived positively, supporting the EUR exchange rate.

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