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EUR/USD Struggles Below 1.0700 As US Data Fuel Hawkish Fed Predictions, ECB's Lagarde Backs Higher Rates
The EUR/USD is seeking direction after experiencing its largest weekly decline in a week. US statistics reignite the Fed's hawkish concerns, propelling Treasury rates and the US Dollar. Lagarde reiterates the proposal for a 50 basis point rate increase in March. Second-tier data/events and risk catalysts are the key to generating new market momentum.
EUR/USD makes its way to 1.0690 but struggling to extend the corrective recovery from late Wednesday into early Thursday. Nonetheless, the major currency pair fell the most in a week as US data bolstered Fed wagers and pushed US Treasury bond rates and the US Dollar to multi-day highs. Nonetheless, Christine Lagarde's recent hawkish statements regarding the European Central Bank (ECB) appeared to have supported prices.
In spite of this, US 10-year Treasury bond yields soared to a fresh six-week high, and the US Dollar Index (DXY) also climbed to a 1.5-month high, after important US data indicated that the Federal Reserve (Fed) may boost interest rates further.
In January, US Retail Sales growth accelerated to 3.0% from 1.8% predicted and -1.0% previously, as reported on Wednesday. In addition, Retail Sales excluding Automobiles increased by 2.3% in the same period, above analysts' expectations of +0.8% growth. In the same vein, the New York Empire State Manufacturing Index for February rose to a three-month high of -5.8 vs a prediction of -18.0 and market expectations of -32.9. Alternately, the US Industrial Production posted 0.0% MoM numbers for January, compared to experts' estimates of 0.5% and earlier readings of -0.7%, but failed to dampen the hawkish sentiment around the Federal Reserve's (Fed) next move.
According to the FEDWATCH tool of Reuters, the market's bets on the Fed's next movements show that US central bank rates will peak in July around 5.25 percent, as opposed to the December Federal Reserve forecast of 5.10 percent.
Lagarde of the ECB, on the other hand, indicated that even while the majority of gauges of longer-term inflation expectations are currently around 2%, these measures merit continuous monitoring. The policymaker noted, “Price pressures remain strong and underlying inflation is still high,” while demonstrating her desire to hike rates by 50 basis points at the March meeting.
Wall Street benchmarks ended the day with modest gains as a result of these trades, but S&P 500 Futures are hesitant to follow suit.
In the near future, the ECB's monthly message and various ECB speakers can provide an exciting day alongside the secondary US housing market, industrial activity, and producer pricing data.
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