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EUR/USD Trades Near a Five-Week High Of 1.0950 As Euro Investors Seek Additional ECB vs. Fed Hints
After gaining the most in 4.5 months, the EUR/USD fluctuates near its greatest levels since early May. ECB announced a 25 basis point rate hike and signalled further hawkishness from the Federal Reserve. Details of economic forecasts and President Lagarde's remarks, as well as conflicting US data, increase Euro traders' need for additional clues.
During the sluggish hours of Friday's Asian session, EUR/USD fluctuates around 1.0950 as bulls take a respite following a stellar rally, the largest since early February. In doing so, the Euro/U.S. dollar exchange rate reflects the market's need for additional information to defend the hawkish stance regarding the European Central Bank (ECB) and to corroborate the doubts regarding the Federal Reserve's (Fed) July rate hike.
In spite of this, the European Central Bank (ECB) mirrored market expectations by announcing an increase in interest rates of 25 basis points (bps). Importantly, ECB President Christine Lagarde advocated for a July rate hike and ruled out rate cuts to enable the European Currency (Euro or EUR) to beat the Federal Reserve's (Fed) hawkish stop the previous day.
Negatively, the ECB's most recent growth projections indicated a weaker economic expansion for 2023 and 2024 than previously estimated, and ECB President Lagarde stated that both growth and inflation are highly unpredictable.
On the other hand, the muddled US data and the Fed's first status quo after ten consecutive rate hikes stimulate the US Dollar. As a result, the US Dollar Index (DXY) bears take a breather at the lowest levels in more than a month, flirting with 102.10 recently, after declining the most in three months as of press time.
In terms of the data, US Retail Sales growth for May was 0.3%, compared to -0.1% expected and 0.4% previous readings, while the Core readings, mean Retail Sales excluding Automobiles, matched market expectations for the month at 0.1%, compared to 0.4% previously. In addition, the NY Fed Empire State Manufacturing Index increases to 6.6 in June, compared to -15.1 expected and -31.8 previously, while the Philadelphia Fed Manufacturing Index decreases to -13.7 for the same month, compared to -10.4 previously and -14 market expectations. In addition, US Industrial Production for May decreases to -0.2% from 0.1% expected and 0.5% previously, and Initial Jobless Claims for the week ending June 9 are revised upwards to 262K from 249K expected.
Following the data from the CME's FedWatch Tool, nearly 67% of market participants are betting on a 25 basis point (bps) rate rise in July. The traders' lack of conviction in the Federal Reserve's (Fed) nearly unambiguous signals for a hawkish move in July is similarly illustrated.
In this context, Wall Street benchmarks rose by more than 1% while 10-year US Treasury bond yields fell to 3.72 percent. In addition, the US Dollar Index (DXY) fell to its lowest level since May 12, touching 102.15, its lowest level in three months.
According to the details of the Harmonised Index of Consumer Prices (HICP), the final readings of Eurozone inflation data for May will precede the preliminary readings of the Michigan Consumer Sentiment Index (CSI) for June and five-year inflation expectations to direct immediate EUR/USD movements. Bond market movements and central bank hints should be observed most closely for direction.
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