The EUR/USD pair is holding steady around 1.0460 during Asian trading hours on Friday, extending its gains from the previous three sessions. The pair’s recent strength follows US President Donald Trump’s decision to delay the implementation of reciprocal tariffs, while the US Dollar (USD) weakens amid declining US Treasury yields. Despite ongoing concerns about a global trade war, the market is focused on upcoming economic data.
Investors are now awaiting the US Retail Sales report, the final key economic release of the week. Expectations are for a slight monthly contraction of 0.1% in January, following a 0.4% increase in December.
The US Dollar Index (DXY), which measures the USD against six major currencies, continues its downward trend for a fourth consecutive session, trading around 107.00. US Treasury bond yields are currently at 4.31% for the 2-year note and 4.53% for the 10-year note.
Recent US economic data showed Core PPI inflation rising to 3.6% year-over-year in January, exceeding the expected 3.3% but slightly below the revised 3.7% from the previous month. This reinforces expectations that the Federal Reserve (Fed) may delay interest rate cuts until the latter half of the year. Persistently high inflation could also support the Fed’s current stance of maintaining interest rates at 4.25%-4.50% for an extended period.
However, the Euro faces potential challenges as European Central Bank (ECB) policymaker Boris Vujčić suggested that markets are already pricing in three rate cuts this year, a forecast he deems reasonable. Vujčić also indicated that the ECB could remove its reference to a “restrictive policy” in the March statement, citing expectations of a swift decline in services inflation in the coming months.
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