Further rate hikes to boost Euro

Published on 01.06.2023 12:22

The EUR/USD pair is marching towards the round-level resistance of 1.0700 in the early Toyo session. The major currency pair showed a sharp recovery from 1.0640 on Wednesday after the US Dollar Index (DXY) faced intense selling pressure post refreshing a 10-week high at 104.70. The USD Index has dropped to near 104.23 and is looking vulnerable above the immediate support.

S&P500 remained in a bearish trajectory on Wednesday amid a cautious market mood ahead of the United States Employment data. Investors are worried that healthy US labor conditions would strengthen the odds of one more interest rate hike from the Federal Reserve (Fed), which could push the US economy further toward a recession.

US JOLTS Job Openings data beat estimates with a decent margin. The economic data landed at 10.103M, higher than the estimates of 9.375M and the former release of 9.745M. Kathy Jones, chief fixed income strategist at Charles Schwab, said in a tweet that job openings numbers indicate that "the job market is still healthy."

On Wednesday, Cleveland Federal Reserve Bank President, Loretta Mester, in an interview with Financial Times, cited “I don’t really see a compelling reason to pause — meaning wait until you get more evidence to decide what to do.”

Meanwhile, the Euro showed an impressive recovery despite a sheer slowdown in German inflation. The preliminary German Harmonized Index of Consumer Prices (HICP) surprisingly softened to 6.3% vs. the estimates of 6.8% and the former release of 7.6%. Monthly HICP showed a deflation of 0.2% which infused confidence among European Central Bank (ECB) policymakers that the restrictive monetary policy is dignifying its job effectively.

Investors should note that inflationary pressures in Spain and France have also softened well than expectations, which indicates that the preliminary Eurozone HICP will also show a decent pace of decline.

However, ECB President Christine Lagarde has already cleared that more interest rate hikes are in the pipeline to contain stubborn Eurozone inflation.