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EUR / USD Exceeds 1.0600 as Yields Extend Losses, US PCE Inflation in Focus

Alina Haynes

Feb 24, 2023 14:29

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The EUR / USD pair firmly recovered after falling below 1.0580 during the late New York session. The primary currency pair has reclaimed the round-level resistance at 1.0600 and is attempting to maintain its position above it. As demand for US Treasury bonds has increased, the shared currency pair has shown some resilience.

 

As the volatility associated with the Federal Reserve's (Fed) plan to further tighten monetary policy in order to control inflationary pressures subsides, investors are showing some interest in US government bonds. As a consequence, the yield on a 10-year US Treasury note has decreased to 3.87 percent.

 

Prior to the release of the United States Personal Consumption Expenditure (PCE) Price Index data, it is anticipated that the US Dollar Index (DXY) will remain on tenterhooks near 104.20. In the meantime, S&P500 futures have recouped the majority of their recent losses from the beginning of the Asian session, indicating a recovery in risk appetite.

 

Strong labor market conditions and a revival in consumer spending in the United States have confirmed the persistence of inflationary pressures, and it would be imprudent to declare victory in the war against persistent inflation. As a consequence, Fed Chair Jerome Powell is anticipated to raise interest rates in the near future. The economists at TD Securities anticipate two additional interest rate hikes in March and May.

 

Investors have shifted their focus to the publication of the Eurozone's Harmonized Index of Consumer Prices (HICP) data. Analysts at SocGen predict, "With the delayed German inflation release publishing at 9.2%, which is higher than the 8.5/8.6% estimate we believe Eurostat used, the final euro area HICP figure may be revised up from 8.5% to 8.6%." It is uncertain whether the core and other main components will be revised, given that Germany has only released the headline figure."

 

The European Central Bank (ECB) is consistently striving to reduce inflationary pressures by increasing interest rates. The European Central Bank's interest rate is projected by Goldman Sachs. In addition to an increase of 50 basis points in March and 25 basis points in May, the investment banking firm forecasts an increase of 25 basis points in June.


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