After snapping a two-day rise, the EUR/USD remains under pressure, consolidating prior weekly gains.
As traders review inflation fears following Friday’s US PCE data, the DXY probes a drop from a two-month high.
Covid troubles in Australia, Japan, and the United Kingdom have also put a safe-haven bid on the dollar.
Markets can be entertained by Fedspeak ahead of the US NFP on Friday.
Heading into Monday’s European session, the EUR/USD fails to extend the previous week’s recovery advances, falling 0.11 percent intraday around 1.1920. Due to its risk-safety attraction, the lethargic market fails to curb the pair sellers as fresh fears of inflation and the coronavirus (COVID-19) support the US dollar’s demand.
By press time, the US dollar index (DXY) had posted its best intraday gains in over a week, up 0.07 percent on a day around 91.88.
The US Core Personal Consumption Expenditures (PCE) Price Index, which was released on Friday, appears to be the key driver of the greenback’s recovery. With 3.4 percent YoY readings in May, the Fed’s preferred inflation index soared to its highest level in nearly three decades, prompting questions about the Fed’s continued efforts to calm inflation fears and talk about rate hikes and tapering.
“Expecting to see some of the extremely high inflation readings return to normal,” Minneapolis Federal Reserve President Neel Kashkari said after the US Core PCE announcement. On the contrary, according to Reuters, Boston Federal Reserve President Eric Rosengren stated on Friday that they need to consider some of the negative consequences of a low-for-long interest rate approach.
Aside from concerns about the Fed’s policy normalization, recent currency troubles in Australia, Japan, and the United Kingdom also favor the US dollar and weigh on EUR/USD pricing. While stricter and broader activity limits are in place in Sydney, Australia, as a result of an increase in virus infections and strain instances, German Chancellor Angela Merkel is pushing for a ban on British passengers due to concerns about the Delta plus variety. Japan’s hosting of the Olympics and Paralympics has also been widely criticized as the country battles a new wave of the virus.
It’s worth noting that the market’s extension of late Friday’s retreat was aided by a light calendar and thin feeds.
Moving on, the justification of US inflation fears by Fed policymakers will be a significant directive for EUR/USD pricing ahead of Friday’s key jobs data. If the Fed softens its stance on the reflationary period, the quotation may continue its recent slide towards the monthly low, which is also the lowest since early April.
Multiple failures to breach the 200-day EMA, combined with Friday’s bearish candlestick formation, the tombstone Doji, have EUR/USD sellers hoping to retest the monthly low.
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