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EUR / USD Surpasses 1.0600 As Yields Extend Losses, US PCE Inflation In Focus
As US yields fall, EUR / USD aims to shift its operations above 1.0600. An increase in US PCE Inflation data will increase the likelihood of additional Fed rate increases. To combat persistent inflation, the ECB is anticipated to implement three more rate increases.
After falling below 1.0580 in the late New York session, the EUR / USD pair strongly recovered. The main currency pair has recaptured the round-level resistance of 1.0600 and is attempting to hold above it. As demand for US Treasury bonds has increased, the shared currency pair has displayed some resilience.
As volatility associated with the Federal Reserve's (Fed) plan to further tighten monetary policy to control inflationary pressures subsides, investors are displaying some interest in US government bonds. The 10-year US Treasury yield has fallen to 3.87% as a result.
The US Dollar Index (DXY) corrected to near 104.20 and is expected to remain on the tenterhooks ahead of the publication of the United States Personal Consumption Expenditure (PCE) Price Index data. Meanwhile, S&P500 futures have recovered the majority of their recent losses exhibited in the early Asian session, indicating a recovery in risk appetite.
Strong labor market conditions and a rebound in consumer spending in the United States have confirmed the persistence of inflationary pressures, and it would be imprudent to declare victory in the war against persistent inflation. As a result, Fed chair Jerome Powell is anticipated to raise interest rates in the near future. TD Securities economists anticipate two additional interest rate increases in March and May.
Investors have transferred their attention to the release of the Harmonized Index of Consumer Prices (HICP) data in the Eurozone. Analysts at SocGen anticipate, "With the delayed German inflation release publishing at 9.2%, which is above the 8.5/8.6% estimate we believe Eurostat used, the final euro area HICP figure may be revised up from 8.5% to 8.6%." It is uncertain whether the core and other major components will be revised, particularly since Germany has only released data on the headline figure."
By increasing interest rates, the European Central Bank (ECB) is consistently working to reduce inflationary pressures. Goldman Sachs has come forward with an interest rate projection for the European Central Bank. The investment banking firm said in addition to an increase of 50 basis points in March and 25 basis points in May, it is estimating a 25 basis-point hike in June.
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