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The EUR/USD pair holds lower ground near 1.1415 during a quiet Asian session opening on Wednesday, after stepping back from a three-month high in the last two days.
The pair’s latest weakness could be linked to the higher US Treasury yields and downbeat comments from the European Central Bank (ECB) policymakers.
The yield on the 10-year note reached 1.97%, its highest level since Nov 7, 2019, as investors await inflation data on Thursday. Expectations are for the January consumer price index to show a 0.5% increase after a 0.6% rise in the prior month, with the year-over-year reading expected to show a 7.3% climb.
On the other hand, European Central Bank (ECB) governing council member and Bank of France’s head Francois Villeroy de Galhau said on Tuesday that the market reaction to last week’s ECB meeting may have been too strong.
It’s worth noting that an escalation in the risk concerning the Russia-Ukraine war and the market’s anxiety ahead of the US Consumer Price Index (CPI) data for January, as well as the European Commission’s quarterly economic forecasts, up for publishing on Thursday, also weigh on the EUR/USD prices of late.
On the contrary, firmer equities and the US dollar’s failure to track firmer bond yields seem to challenge the EUR/USD sellers ahead of the key day.
Ahead of the crucial catalysts, markets remain bearish on the major currency pair. On balance, risks are expected to be to the downside for EURUSD this year and to the upside next year. Bank of America said on Tuesday, “We have been forecasting EURUSD at 1.10 this year, 1.15 next year and 1.20 (lower end of long-term equilibrium range) in 2024. Although getting the timing right of such a path will be difficult, we stick with it for now”.
