EUR/USD treads water around 1.0800 amid a subdued US Dollar, awaits FOMC minutes

LONDON (February 20) The EUR/USD pair recovers intraday losses and attempts to continue its winning streak that began on February 14. However, the prevailing risk-off sentiment dominates the market ahead of the Federal Open Market Committee’s (FOMC) meeting minutes, scheduled for Wednesday.

The US Dollar (USD) could strengthen against the Euro (EUR) following recent stronger consumer and producer prices from the United States (US). This data has bolstered market sentiment, suggesting that the Federal Reserve (Fed) may avoid implementing any rate cuts in the upcoming meetings in March and May.

The Euro faces downward pressure as European money markets experience a decline, potentially due to market caution amid diminishing prospects for early interest rate cuts globally. However, China's decision to reduce its five-year Loan Prime Rate (LPR) by 25 basis points (bps) to support its struggling economy may provide some support for the Euro. Traders are anticipating potential volatility surrounding the release of the HCOB Purchasing Managers Index (PMI) data from the Eurozone and Germany, scheduled for Thursday.

The US Dollar Index (DXY) continues to hold its ground in positive territory despite a decrease in US Treasury yields. The DXY edges higher to around 104.40, while the yields on US bonds stand at 4.62% for the 2-year and 4.28% for the 10-year, at the time of writing.

Daily digest market movers: EUR/USD appreciates amid a subdued US Dollar

• European Union Passenger Car Registrations rose by 12.1% annually in January, against December’s 3.3% fall, which might have provided some support for the Euro.
• The People’s Bank of China (PBoC) has chosen to keep its one-year Loan Prime Rate (LPR) unchanged at 3.45%. However, it has reduced the five-year LPR by 25 basis points from 4.20% to 3.95%.
• According to the German Bundesbank Monthly Report, economists at Deutsche Bundesbank anticipate a general decline in the inflation rate in the upcoming months. The earlier timing of Easter this year compared to last year is expected to influence the prices of package holidays, consequently impacting the inflation rate.
• German Buba Monthly Report projected that inflation for food and other goods will likely decrease further in the coming months. However, price pressures in the services sector are expected to ease at a slower pace, primarily due to the sustained strength in wage growth.
• ANZ expects that the US Federal Reserve could initiate a rate-cutting cycle from July. According to the CME FedWatch Tool, there is a 53% probability of a 25 basis points rate cut by the US Fed in the June meeting.
• The Federal Reserve's dot plot for this year suggests an anticipation of 75 basis points in rate cuts, while the Fed funds futures market is pricing in approximately 89 basis points in cuts.
• The recent remarks from Fed officials suggest the possibility of rate cuts soon. San Francisco Federal Reserve President Mary C. Daly stated that three rate cuts are a reasonable baseline for 2024. Additionally, St. Louis Federal Reserve President James Bullard recommended that the Federal Reserve should contemplate lowering interest rates at its March meeting.

FXStreet