EUR/USD Investors Target 1.0730 Despite Higher Yields, Hawkish Fed Expectations, a Focus on EU GDP, and ECB Worries

EUR/USD re-establishes intraday high near 1.0710 as bulls retain control for a second consecutive day in the early hours of Thursday. In doing so, the main currency pair fails to justify looming economic concerns and optimistic US Treasury bond yields prior to the revised readings of Eurozone first quarter (Q1) 2023 Gross Domestic Product (GDP).

Recent market sentiment and the EUR/USD exchange rate have been negatively impacted by growing concerns over the economic downturn, as evidenced by the most recent gloomy data from the leading economies. Economic pessimism is bolstered by fears of higher interest rates from the world's leading central banks, particularly after the most recent hawkish revelations from the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC).

On Wednesday, Germany's Industrial Production (IP) improved to 0.3% MoM compared to 0.6% market forecasts and -2.1% prior (revised) readings, while the annual growth figures slowed to 1.6% from 2.3% (revised) prior readings and 1.2% expected.

Isabelle Schnabel, a member of the Governing Council of the European Central Bank (ECB), refutes recent dovish concerns by predicting that the impact of our tighter monetary policy on inflation will climax in 2024. Nonetheless, Klaas Knot, a policymaker at the ECB, stated that prolonged monetary tightening could still cause tension in the financial markets, which in turn encourages ECB hawks. The ECB official added, "Market inflation expectations appear optimistic."

On a separate page, the looming fears of a $1.0 bond issuance by the United States Treasury Department as a result of the debt-ceiling agreement also agitate the market sentiment, weigh on the bond price, and boost yields while placing a floor beneath the DXY.

Notably, according to the most recent report from the Organisation for Economic Co-operation and Development (OECD), the global economy will experience a sluggish recovery in the future years as persistent core inflation and tighter monetary policy weigh on demand. The latest increase in market wagers on a 25 basis point (bps) rate hike by the Federal Reserve in July is also negative for the EUR/USD, even though the Federal Open Market Committee (FOMC) is likely to leave rates unchanged in June.

The yield on the benchmark 10-year US Treasury bond grew to 3.79 percent, the most in five weeks, while the yield on the two-year counterpart marched to 4.5 percent. However, 10-year US bond coupons remain largely unaltered at 3.79 percent as of press time, whereas two-year yields continue to rise to 4.54 percent as we write. Wall Street closed mixed and S&500 Futures struggle for distinct direction, reflecting the market's mood.

Consequently, volatile markets permit the EUR/USD pair to profit from the US Dollar's retreat, which is currently near 104.00 and down 0.10 percent intraday. However, the further upside potential of the quote is contingent on the Eurozone Q1 GDP, US Initial Jobless Claims, and central bank discussion.