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EUR/USD Falls Toward 1.0800 On Hawkish Fed Bets, Prospects Of No US Default, And Focus On Lagarde's ECB Speech
EUR/USD retreats from a six-week low as the US Dollar climbs to an almost two-month high. Softer EU inflation and a pessimistic tone from ECB's de Cos drag on the Euro's value. Optimism surrounding the extension of the US debt limit and the recent increase in Fed bets in favor of a June rate rise favor the US Dollar. In terms of risk catalysts, ECB President Lagarde's speech will be the most important to monitor for direction.
The EUR/USD reverses its late-Wednesday rebound from the six-week lows as market sentiment deteriorates ahead of Thursday's European session. Doubts about the European Central Bank's (ECB) hawkish disposition versus the recent increase in the odds favoring the Federal Reserve's (Fed) rate hike in June are also exerting downside pressure on the Euro pair, which is down 0.05% intraday near 1.0840 as of press time.
According to interest rate futures, market participants have recently supported a rate hike by the Federal Reserve of 0.25 percentage points in June, with 20 percent of the probabilities versus expectations favoring no such action in 2023. The most recent US statistics and the Fed's hawkish comments may have provided indications for the hawkish.
The April figures for US Housing Starts were disappointing, coming in at 1.401M compared to the expected 1.4M and the revised figure of 1.371M from the previous month. Alternatively, Building Permits for the month in question decreased to 1.416 million from 1.437 million according to revised prior readings and market forecasts. Prior to that, April's positive Retail Sales and Industrial Production figures enabled Federal Reserve (Fed) officials to maintain their hawkish stance and stimulate the risk-on sentiment. Austan Goolsbee, president of the Federal Reserve Bank of Chicago, and Raphael Bostic, president of the Atlanta Federal Reserve, both reiterated inflation concerns and favored EUR/USD bears.
In contrast, the final readings of Eurozone inflation for April, as measured by the Harmonized Index of Consumer Prices (HICP), decreased to 0.6% MoM from 0.7% previously estimated, while verifying the 7.0% YoY increase initially predicted. Pablo Hernandez de Cos, a policymaker at the European Central Bank (ECB) and the governor of the Bank of Spain, stated in a Wednesday interview with MNI, "The persistence of higher inflation would slow the recovery and would likely lead to further tightening in the euro area."
In addition to the Fed versus ECB move, comments from US President Joe Biden and House Speaker Kevin McCarthy convinced the markets that they can work together to avert a 'catastrophic' default, which bolstered the market's risk-on sentiment and boosted the US Dollar. Noteworthy is the fact that the US Dollar Index (DXY) purchasers maintain control at the highest levels in seven weeks, bidding near 102.90 at press time.
Notably, apprehension ahead of today's speech by ECB President Christine Lagarde and US President Biden's promise to have a budget solution by Sunday's end appear to be stimulating the EUR/USD bearish. Despite Wall Street's ebullient close, S&P500 Futures post modest losses that reflect the prevailing sentiment, whereas US Treasury bond yields remain at a multi-day high. Consequently, the US 10-year and 2-year Treasury bond yields rose to their greatest levels since May 1 and April 24 while displaying a four-day uptrend near 3.57 percent and 4.16 percent, respectively, before easing to 3.57 percent and 4.14 percent at press time.
In addition to ECB President Lagarde's speech, EUR/USD speculators may find entertainment in secondary US data and discussions of the US debt ceiling.
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