- EUR/USD declines as the US Dollar strengthens following three consecutive sessions of losses.
- Fed Governor Michelle Bowman warned that upside inflation risks persist, stressing the need for more clarity before considering rate cuts.
- The Euro faces downward pressure from the ECB’s forecast of three additional rate cuts this year.
EUR/USD extends its losses for the second successive session, trading near 1.0460 during the Asian hours on Tuesday. This downside could be attributed to the improved US Dollar (USD) amid rising Treasury yields.
The US Dollar Index (DXY), which tracks the US Dollar’s performance against six major currencies, edges higher after registering losses in the previous three successive sessions and trades around 106.90, while yields on 2-year and 10-year US Treasury bonds stand at 4.27% and 4.51%, respectively, at the time of writing.
Federal Reserve Governor Michelle Bowman stated on Monday that rising asset prices may have slowed the Fed’s recent progress on inflation. While Bowman expects inflation to decline, she cautioned that upside risks remain and emphasized the need for more certainty before considering rate cuts.
Meanwhile, Fed Governor Christopher Waller acknowledged late Monday that while inflation has improved, progress has been “excruciatingly” slow. Waller stressed that the Fed must not allow policy uncertainty to hinder data-driven decision-making.
The Euro faces downward pressure as several European Central Bank (ECB) officials remain comfortable with the outlook for three more rate cuts this year, following a 25 basis point reduction to 2.75% last month.
However, the Euro could gain support if a ceasefire in Ukraine is reached and gas supplies resume. A JP Morgan note suggests that the EUR/USD pair could appreciate by up to 5% under such circumstances.
Reports indicate that US President Donald Trump and Russian President Vladimir Putin have agreed to initiate negotiations to end the conflict. Officials from the Trump administration are scheduled to meet with their Russian counterparts in Saudi Arabia on Tuesday to discuss a potential peace agreement.
