EUR/USD extends rebound as US Dollar retreats from five-month high

• EUR/USD climbs to a five-day high on renewed US Dollar softness.
• Market sentiment sours on the prolonged US government shutdown, weighing on the Greenback.
• Eurozone Retail Sales disappoint but fail to dent the Euro's short-term recovery.

The Euro (EUR) strengthens against the US Dollar (USD) on Thursday amid renewed broad weakness in the Greenback. At the time of writing, EUR/USD is trading around 1.1543, rising to a five-day high after slipping to a fresh three-month low on Wednesday.

The US Dollar Index (DXY), which measures the Greenback's performance against six major peers, trades around 99.75, retreating after briefly touching a five-month high on Wednesday. The USD's decline is partly driven by mounting concerns over the prolonged US government shutdown, now the longest in history, surpassing the previous 35-day record.

The shutdown is delaying the release of key official economic indicators, forcing investors and policymakers to rely on private-sector data to gauge the health of the economy.

Adding to the Dollar's woes, fresh data from the Challenger Job Cuts report showed that US employers announced 153,074 job cuts in October, the highest monthly total since 2003. The figure marks a sharp rise from the previous month and points to growing signs of labor-market stress, in contrast with Wednesday's ADP report, which showed that US private payrolls rose by 42,000 in October.

Traders are now reassessing the Federal Reserve's (Fed) monetary policy outlook following last week's 25-basis-point (bps) rate cut. Fed Chair Jerome Powell cautioned that another reduction in December is not guaranteed.

Inflation remains above the 2% target, and recent private-sector labor data have been mixed, prompting investors to temper expectations for aggressive easing. According to the CME FedWatch Tool, markets are now pricing in about a 70% probability of another rate cut in December, up from 64% earlier in the day but down from 94% a week ago.

Meanwhile, the Euro showed a limited reaction to soft Eurozone Retail Sales data, as traders remained focused on broader US Dollar dynamics. According to Eurostat, Retail Sales slipped 0.1% MoM in September, missing expectations for a 0.2% increase, while annual growth slowed to 1.0% from 1.6% in August.