EUR/USD Pair Retreats from Six-Week Highs, US Dollar Gains Traction

The EUR/USD pair extends its retracement slide, slipping for the second consecutive day after reaching levels just above the psychological 1.1000 mark. Currently trading around the 1.0940-1.0935 region, the pair has declined nearly 0.20% during the day.

The US Dollar (USD) gains positive traction as it recovers from Thursday’s lowest level since May 11. This rebound puts pressure on the EUR/USD pair, with the USD benefiting from Federal Reserve (Fed) Chair Jerome Powell’s hawkish outlook. Powell’s comments during congressional testimony support the case for more interest rate hikes at a cautious pace to address persistently high inflation.

Powell’s remarks about the Fed’s view on rate cuts being unlikely for the near future strengthen the Greenback, overshadowing Thursday’s weak US macro data that indicated a softening labor market with steady Initial Jobless Claims at a 20-month high.

Additionally, the EUR/USD pair faces a weaker tone in equity markets, boosting demand for the safe-haven US Dollar. Concerns arise from multiple central banks implementing interest rate hikes and adopting a more hawkish outlook, which raises worries about economic headwinds caused by rising borrowing costs. Moreover, escalating US-China tensions further dampen investor risk appetite, favoring the US Dollar.

Market focus now turns to the release of flash Purchasing Managers’ Index (PMI) data from the Eurozone and the US. These indicators will offer fresh insights into the global economy’s health and provide impetus to the EUR/USD pair. Expectations for additional interest rate hikes by the European Central Bank (ECB) may restrain aggressive bearish bets, limiting the downside for now.