Daily digest market movers: EUR/USD drops as US Dollar advances
- EUR/USD extends its correction to 1.0730 as investors turn risk-averse. The market sentiment turns downbeat as US Federal Reserve (Fed) policymakers maintain hawkish guidance on interest rates.
- On Wednesday, Boston Fed Bank President Susan Collins favored for interest rates remaining steady at their current levels until she gets greater confidence that inflation will sustainably return to the desired rate of 2%. Collins added that “A slowdown in activity will be needed to ensure that demand is better aligned with supply for inflation to return durably.” Her comments indicated that the US economic outlook is strong even though interest rates remain higher for a longer period.
- Apart from Collins, Minneapolis Fed Bank President Neel Kashkari also remained lean towards maintaining the current interest rate framework as it is for the entire year. Kashkari remains concerned over stalling progress in inflation declining to 2% amid a strong housing market. When asked about an interest rate cut, Kashkari said weakness in the job market could justify it.
- Amid dismal market sentiment, the appeal for safe-haven assets such as the US Dollar (USD) and bond yields has improved. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, moves higher to 105.70. 10-year US Treasury yields jump to 4.52%.
- This week, investors look at Fed speakers to project forward moves in the US Dollar due to the absence of top-tier US economic data. However, next week, the major trigger will be producer and consumer inflation data.. Hot inflation numbers would diminish prospects of rate cuts this year.
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