The EUR/USD pair ended its five-day losing streak on Friday, trading around 1.0540 during the Asian session. The rebound comes as the US Dollar (USD) faces downward correction following comments from Federal Reserve (Fed) Chair Jerome Powell, who noted that the strong performance of the US economy gives the central bank flexibility to gradually lower interest rates.
The US Dollar Index (DXY), which measures the USD against a basket of six major currencies, has pulled back from its yearly high of 107.06 recorded on Thursday. At the time of writing, the DXY is trading around 106.80, a move attributed to a slowdown in the so-called “Trump trades.”
In addition to Powell’s remarks, the latest US Producer Price Index (PPI) data showed a year-over-year increase of 2.4% in October, up from a revised 1.9% in September and surpassing market expectations of 2.3%. Core PPI, which excludes food and energy, rose by 3.1% YoY, slightly above the forecasted 3.0%, reinforcing the view of persistent inflationary pressures in the US.
On the European side, European Central Bank (ECB) board member Isabel Schnabel emphasized on Thursday that interest rate changes should remain the primary tool for monetary policy, with bond purchases and forward guidance to be used more sparingly.
The ECB’s October monetary policy meeting accounts revealed that policymakers are increasingly considering rate cuts. However, the ECB remains cautious due to persistent domestic inflationary pressures, including strong wage growth and sluggish labor productivity. ECB officials have stressed the need for further data before making any decisions on policy changes, leaving investors to weigh the central bank’s next steps.
As the EUR/USD pair bounces off recent lows, traders are closely monitoring developments in both US and European economic data, as well as any further comments from central bank officials, which could shape market expectations for interest rates in the near term.
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