During Asian trading on Tuesday, the EUR/USD currency pair is fluctuating within a narrow band, building on the substantial gains seen over the last couple of days. Currently, spot prices hover around the 1.1900 level, slightly below the peak reached earlier.
The US dollar has bounced back from its recent plunge to a six-day low, which poses a challenge for the EUR/USD pair. Still, there are widespread expectations that the Federal Reserve will reduce borrowing costs two more times this year, making significant strengthening of the dollar seem improbable. Additionally, the prevailing risk-on atmosphere might limit the dollar’s performance as a safe-haven asset.
In another development, Bloomberg News reported that Chinese regulators have urged financial institutions to limit their U.S. Treasury holdings, citing concerns about concentration risks and market fluctuations. This recommendation aligns with broader apprehensions about the independence of the US central bank, which could bolster bearish sentiments towards the dollar. On a different note, the European Central Bank’s (ECB) somewhat hawkish stance is likely to be advantageous for the euro and support the EUR/USD pair further.
Indeed, the ECB has not embarked on rate cuts since concluding a series of reductions in June, and the unexpectedly strong growth has alleviated pressures on policymakers to add more stimulus. This presents a notable contrast to expectations of further easing from the Fed, suggesting that the EUR/USD pair may be inclined to move upwards. Hence, any potential pullback might be viewed as a chance to buy, likely remaining limited.
Currently, market players are anticipating upcoming US retail sales figures, which, alongside comments from notable FOMC members, could influence the US dollar. Nonetheless, all eyes are set on the delayed release of the U.S. Nonfarm Payrolls (NFP) report on Wednesday. Furthermore, the new US consumer inflation data expected on Friday will provide insights into the Fed’s trajectory concerning interest rates, potentially lifting the dollar and infusing fresh momentum into the EUR/USD pair.
