Euro defended despite Fed’s signals ahead of Powell Testimony

The EUR/USD began the US session hesitating due to the US dollar’s strength, but the pair eventually managed to become higher after three-day downtrend. ECB policymakers keep suggesting higher rates even as inflation clues, growth numbers ease. Fed OFFICIALS ALSO reiterate hawkish bias ahead of Powell’s bi-annual Testimony before the Congress.

three major factors allow THE euro bears to stay hopeful; namely the risk-off mood, the upbeat US data and the hawkish remarks by Fed policymakers.

The EUR/USD edges higher past the 1.0900 level amid early hours of Wednesday’s Asian session, defending the late Tuesday’s rebound from the lowest levels in three days around 1.0920, as markets prepare for the week’s key events. In doing so, the Euro pair stays defensive despite broad US dollar strength as the European Central Bank (ECB) Officials remain hawkish about future policy moves.

ECB Governing Council member, Olli Rehn said that the underlying inflation is easing ‘only gradually’. Additionally, ECB Governing Council Gediminas Simkus spoke with MNI on late Tuesday and said, “I would not be surprised (by a rate) hike in September.”

Germany’s Producer Price Index (PPI) rises by 1.0% for May versus 1.7% YoY expected and 4.1% prior whereas the monthly figures spread disappointment with -1.4% mark compared to -0.7% market forecasts and 0.3% previous readings. Previously, downbeat German and Eurozone statistics raised recession woes in the bloc.

On the US front, Fed’s Lisa Cook said “I am committed to promoting sustained economic growth in a context of low and stable inflation,” in her statement to be given before the Senate on Wednesday. Further, Federal Reserve Governor Philip Jefferson said, “I remain focused on returning it to our 2% target.”

US Housing Starts jumped to the highest level since April 2022 by rising 21.7% MoM in May versus -2.9% (revised from +2.2%) recorded in April and -0.8% market forecasts. On the same line, Building Permits were also upbeat for the said month, up 5.2% MoM versus -5.0% expected and -1.4% previous readings (revised from -1.5%).

Apart from the Fed versus ECB play and the data counters, the market’s risk-off mood also allowed the US Dollar to remain firmer and weigh on the EUR/USD price. That said, the sentiment soured after the People’s Bank of China (PBoC) cut two key lending rates (Loan Prime Rate (LPR) and Medium-term Landing Facility (MLF) rate for the first time in almost a year. Additionally weighing on the risk appetite was the US-China tension about Taiwan.

Wall Street benchmark began the week on the negative side while the US Treasury bond yields also snapped a two-day winning streak. Moving on, EUR/USD traders should pay attention to the speeches from second-tier ECB officials ahead of Fed Chair Jerome Powell’s bi-annual Testimony. In case Powell opts for defending the hawkish moves, the Euro pair may witness further downside.