EUR/USD Edges Lower to Near 1.0750 Following a Fed Official's Hawkish Remarks
The EUR/USD continues to lose ground as a result of the Fed's hawkish stance and the extension of elevated policy rates. The Fed's Kashkari stated that interest rate stability for a protracted period of time is the most probable outcome. Since September 2022, March witnessed the largest increase in Eurozone Retail Sales, which indicates robustness in the consumer sector.

The EUR/USD pair extends its losses for the second consecutive session on Wednesday, trading near 1.0750 during the Asian session. The US Dollar (USD) appreciates as a result of anticipations that the Federal Reserve (Fed) will extend already elevated interest rates. Nonetheless, last week's weaker US labor data has reignited optimism regarding possible interest rate reductions by the Federal Reserve (Fed) in 2024.
The US dollar strengthened on Tuesday as a result of hawkish remarks made by Minneapolis Fed President Neel Kashkari, which subsequently depreciated the EUR/USD pair. The most probable scenario, according to Kashkari, is that rates will remain unchanged for an extended period. In the event that disinflation resurfaces or the labor market experiences a substantial deterioration, rate reductions might be contemplated. Increasing interest rates is not the most probable consequence, but it cannot be ruled out entirely, according to a report by Reuters.
Monday, Bloomberg reported that Thomas Barkin, president of the Federal Reserve Bank of Richmond, stated that rising interest rates would likely restrain U.S. economic expansion. On the contrary, Barkin observed that increasing interest rates would aid in mitigating inflationary forces by aligning them more closely with the objective of 2% set by the central bank.
March witnessed a 0.8% increase in Retail Sales (MoM) in the Eurozone, reversing the 0.3% decline that had been revised upwards in February. This surpassed the 0.6% increase that was anticipated. The observed surge in retail activity was the most substantial since September 2022, providing further evidence of the robustness of the European consumer sector. Furthermore, year-over-year retail sales increased by 0.7%, surpassing the amended decrease of 0.5% observed in February. This represents the initial expansion in the retail sector since September 2022, indicating a favorable change in consumer expenditure patterns.
June is when the European Central Bank (ECB) is anticipated to initiate a reduction in borrowing costs. Philip Lane, chief economist of the ECB, stated that recent data have reinforced his conviction that inflation is approaching the target of 2%, as reported by the Business Standard. Although several ECB officials seem to be in favor of easing measures for the following month, President Christine Lagarde has not yet proposed any additional reductions.
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