EUR/USD Sees Mild Rebound Amid Mixed Economic Signals; Awaiting Major ECB Meeting
The EUR/USD currency pair observed a resurgence of buying interest in Friday’s Asian session, recouping a significant portion of its decline from the previous day, which had plummeted to a three-month nadir of 1.0685. The spot currently hovers around 1.0720, marking a 0.20% ascent for the day.
This uptick draws its momentum from a subdued US Dollar (USD), although a pronounced upward trajectory appears uncertain.
The US Dollar Index (DXY), a gauge for the dollar against a selection of global currencies, retreats from its peak since March 9. Investors appear to be capitalizing on gains in anticipation of China’s inflation data and the forthcoming G20 summit. Additionally, the receding US Treasury bond yields combined with a steadier equities market diminish the allure of the dollar as a refuge. These dynamics collectively support the EUR/USD ‘s favorable wind. However, the potential of the Federal Reserve to further constrict its policy could constrain any substantial decline in US bond yields and the USD.
Market sentiments are increasingly leaning towards an additional 25 bps rate enhancement by the year’s end, with expectations that the Fed will sustain elevated interest rates for an extended period.
Thursday’s revelation of the US Weekly Initial Jobless Claims, which notably dipped to 216K from a prior 228K, complements this sentiment. Paired with the positive US ISM Services PMI, these figures bolster the depiction of a robust US economy, potentially reinforcing the Fed’s firm stance. In contrast, European Central Bank (ECB) representatives have been ambiguous about the trajectory of future rate hikes.
It’s pertinent to highlight recent comments by Slovak policymaker, Peter Kazimir, advocating for another rate hike in September, citing persistently high inflation that surpasses the ECB’s 2% benchmark. Contrarily, Ignazio Visco, Governor of the Bank of Italy and member of the ECB Governing Council, opined that the ECB is nearing its rate hike ceiling. Such divergent stances might deter investors from adopting a robust bullish stance on the common currency, potentially capping any significant rise for the EUR/USD .
As the trading world awaits Germany’s finalized CPI data and France’s Industrial Production figures, no significant economic announcements from the US are slated. Hence, the dollar’s trajectory may hinge on US bond yields and overarching risk appetites. Despite the minor recovery, the EUR/USD pair seems poised to conclude its eighth consecutive week in the red. Given the existing economic landscape, the easier trajectory remains bearish. Consequently, any upward motion might face resistance and is likely to be limited, especially with the pivotal ECB assembly looming next week.
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