. Ahead of the Fed decision and EU inflation, the EUR/USD maintains gains below 1.0900.

Ahead of the Fed decision and EU inflation, the EUR/USD maintains gains below 1.0900.

Ahead of the Fed decision and EU inflation, the EUR/USD maintains gains below 1.0900.

01 Feb 2023

EUR/USD is holding higher ground below 1.0900 in Wednesday’s European session.

The US Dollar struggles to find its feet amid sluggish Treasury yields and cautious markets. All eyes remain on the EU inflation data and Fed decision. 

On Tuesday, the preliminary readings of the Eurozone fourth-quarter (Q4) Gross Domestic Product (GDP) grew 0.1% QoQ versus 0.0% expected and 0.3% prior. The YoY prints also painted a rosy picture of the bloc as it rose past 1.8% market consensus to 1.9%, versus 2.3% prior. However, German Retail Sales plunged by 5.3% MoM in December, much worse than expected. Earlier in the week, German GDP also disappointed the EUR/USD pair traders.

Alternatively, US Q4 Employment Cost Index (ECI) eased to 1.0% versus 1.1% market forecasts and 1.2% prior readings. Further, the Conference Board (CB) Consumer Confidence eased to 107.10 in January versus 108.3 prior. It should be noted that no major attention could be given to the US Chicago Purchasing Managers’ Index (PMI) for January which rose to 44.3 versus 41 expected and 44.9 from previous readings.

Elsewhere, firmer earnings data from the industry majors like General Motors, Exxon, and McDonald’s pushed back recession woes in the US and propelled the Wall Street benchmarks. That said, the Dow Jones Industrial Average (DJIA), S&P 500, and Nasdaq all three reported over 1.0% daily gains the previous day. On the other hand, the US 10-year Treasury bond yields snapped a three-day uptrend while revisiting 3.51% while the two-year counterpart also dropped to 4.20%.

It should be noted that JP Morgan’s annual survey marked easing inflation fears and rising recession woes, which in turn probe the risk profile amid the pre-Fed anxiety. Even so, global rating giant Fitch expects the US Consumer Price Index (CPI) to moderate to mid-3.0% range in 2023 and a high-2.0% range in 2024, which in turn probes the EUR/USD bears.

Amid these plays, the S&P 500 Futures prints mild losses while the US Treasury bond yields remain sluggish and pause the previous day’s pullback. The same allows the EUR/USD pair to brace for the Fed’s dovish hike of 0.25%.

While the 0.25% Fed rate hike is almost given and priced in, the EUR/USD traders will also pay attention to the activity data for January and Jerome Powell’s ability to defend the aggressive rate hikes.