EUR/USD sellers attack 1.1400 as ECB v/s Fed battle intensifies after US inflation
- EUR/USD remains on the back foot around weekly low.
- US Treasury yields refreshed 2.5-year high after US CPI rallied to almost five decade top.
- ECB’s Lagarde rules out faster rate hikes, Fedspeak stays hawkish despite Barkin’s cautious statements.
- German inflation, US Michigan Consumer Sentiment Index will decorate the calendar.
EUR/USD licks its wounds near 1.1400, keeping the previous day’s pullback from a three-month high during Friday’s Asian session.
That said, the US Consumer Price Index (CPI) and comments from various Fed speakers weighed on the pair before European Central Bank (ECB) President Christine Lagarde’s statements. However, the latest comments from Fed Richmond President Thomas Barkin seem to help the major currency pair in trimming intraday losses to 0.30% by the press time.
On Thursday, the US Consumer Price Index (CPI) for January rallied to a nearly five-decade high with a 7.5% YoY figure, versus 7.3% expected and 7.0% prior.
Although the hot inflation figures were already expected, St. Louis Fed President James Bullard went a step farther while supporting 100 bps rate hikes by July and for the balance sheet reduction to start in the second quarter. Fed’s Bullard also cited the potential for 50 basis points (bps) of Fed rate hike in March.
Following that, Federal Reserve Bank of Richmond President Thomas Barkin said that the US economy will likely return past the pre-covid trend this quarter. Though, Fed’s Barkin wasn’t as hawkish as Bullard while saying that he would have to be convinced of a 'screaming need' for a 50 bp hike.
While Fedspeak was moderate, if not strongly bullish, comments from ECB’s Lagarde cited more reasons to believe that the regional central bank won’t be in the bull’s club soon. ECB’s Lagarde said, “Raising the European Central Bank's main interest rate now would not bring down record-high eurozone inflation and only hurt the economy.”
Against this backdrop, the US 10-year Treasury yields remain firmer around the highest levels since July 2019, up one basis point at 2.035%, while the S&P 500 Future drop 0.30% at the latest.
Given the widening gap between the Fed’s hawkish tone and the ECB’s refrain from rising rates, EUR/USD prices are likely to remain depressed. However, today’s German Harmonized Index of Consumer Price (HICP) for January, expected to match the first estimations of 5.1% YoY, will offer immediate direction to the pair. Following that, the preliminary readings of the US Michigan Consumer Sentiment Index for February, expected 67.5 versus 67.2 prior, may entertain the pair traders.
Technical analysis
Failures to cross a three-month-old horizontal resistance near 1.1485 direct EUR/USD bears toward the 50-DMA level surrounding 1.1330.