EUR/USD Recovers from Daily Low, But Remains Under Pressure
The euro pared some of its losses against the US dollar on Wednesday (July 1st), after softer US economic data and comments from Federal Reserve Chairman Kevin Warsh weighed on the greenback. EUR/USD hovered around 1.1387 after hitting an intraday low of 1.1361.
Despite recovering from the daily low, the pair was still down around 0.30% on the day. Pressure on the euro has not completely dissipated as markets still see the Fed potentially maintaining a tight monetary policy for longer.
At the annual European Central Bank forum in Sintra, Portugal, Warsh emphasized that the Fed would not provide forward guidance on the direction of interest rates. He said the US central bank would take a new direction to make better decisions, while noting that inflation risks have declined in recent weeks.
US economic data added additional pressure on the dollar. The ADP Employment Change showed the private sector added only 98,000 jobs in June, lower than market expectations. Meanwhile, the ISM Manufacturing PMI fell to 53.3 from 54.0 in May, also below market expectations.
Following the data's release, the US dollar index (DXY) weakened from its intraday high of 101.59 and hovered around 101.34. The dollar's decline helped EUR/USD pare some losses, although gains remained limited.
However, Warsh reiterated the Fed's commitment to restoring price stability. This stance maintains expectations that US monetary policy could remain restrictive for longer. The market is currently pricing in a 67% chance of a Fed rate hike in September.
Investors' primary focus now shifts to the US Nonfarm Payrolls report on Thursday. This data will provide important clues to assess labor market conditions and the Fed's next policy direction. If the labor data returns to strength, the US dollar could potentially recover and put further pressure on the euro.
From Europe, lower-than-expected eurozone inflation data limited the euro's gains. Slowing inflation reduces the urgency for the European Central Bank to raise interest rates again this year. This situation makes fundamental support for the euro less strong, even though the dollar is currently correcting.
ECB President Christine Lagarde said economic risks are now more balanced than a few weeks ago and emphasized that the eurozone is not in a state of stagflation. She also stated that the ECB will take the necessary steps to contain inflation.
Overall, the EUR/USD movement remains under pressure from a weakening dollar due to US data and the euro, which is being held back by declining European inflation. As long as the Fed remains hawkish and the ECB is in no rush to raise interest rates, the euro's upside is likely limited. (arl)
Source: Newsmaker.id
