EUR/USD dropped sharply to 1.0730 as the US Dollar strengthened following the Federal Reserve’s hawkish interest-rate guidance. While Fed’s Collins and Kashkari support keeping interest rates steady, the European Central Bank (ECB) is expected to deliver three rate cuts this year.
The Euro extended its losing streak for the third consecutive trading session on speculation that the ECB will begin lowering interest rates in June. The decline in Eurozone inflation has paved the way for ECB policymakers to consider this move. Most policymakers anticipate a continued cycle of rate cuts beyond June, with traders pricing in three cuts for the year.
Despite the majority consensus among ECB policymakers, Robert Holzmann, a Governing Council member and Governor of Austria’s central bank, expressed reluctance to cut key interest rates too swiftly or significantly. This differing opinion adds a layer of complexity to the ECB’s decision-making process.
In the US, the market sentiment turned bearish as Fed policymakers maintained a hawkish stance on interest rates. Boston Fed Bank President Susan Collins advocated for maintaining current interest rates until greater confidence in sustainable inflation levels is achieved. Neel Kashkari of the Minneapolis Fed also expressed concerns about stagnating inflation and the strong housing market.
The appeal for safe-haven assets like the US Dollar has increased amid the uncertain market sentiment. The US Dollar Index rose to 105.70, while 10-year US Treasury yields reached 4.52%. Investors are closely monitoring Fed speakers for insights into future US Dollar movements, with upcoming inflation data serving as a major trigger for market expectations.
From a technical analysis perspective, EUR/USD’s decline to near 1.0730 suggests a bearish outlook. The currency pair’s volatility has contracted due to a Symmetrical Triangle formation, with the RSI indicating indecision among traders.
Overall, the interplay between central bank policies, inflation data, and market sentiment continues to drive movements in the EUR/USD pair, shaping the near-term outlook for both currencies.