EUR/USD marches firmly towards 1.0530s on a soft US dollar

  • The shared currency extended its gains in the week by 0.42%.
  • The US dollar falls courtesy of an upbeat market mood.
  • ECB’s Rehn backs a move above 25 bps in the ECB’s September meeting.
  • Fed’s Barkin supported a 50/75 bps rate hike in July and said inflation would go down once supply chain issues were resolved.

The EUR/USD climbs for the second consecutive day, though struggled to get near the 1.0600 figure, as sellers dragged the major from daily highs around 1.0582 towards the 1.0530s area during the New York session. At the time of writing, the EUR/USD is trading at 1.0529, registering a decent gain of 0.18%.

A risk-on impulse weighs on the greenback, so the euro rises

Sentiment is positive, as global equities are rallying. As risk increases appetite, safe-haven assets like the US Dollar remain on the defensive. In the meantime, on Monday, the ECB President Lagarde affirmed that the central bank would raise rates in July and remained flexible about the size of the rate hike in September.

Although Lagarde’s comments lifted the EUR/USD near the 1.0600 figure, buyers lacked the strength to push the major above it, and it fell. The interest rate differential between the ECB and the Fed would likely favor the greenback, which is almost flat, as shown by the US Dollar Index.

Additionally to Lagarde’s commentary, the ECB Chief Economist Philip Lane said that he does not see the need to revisit the plan after July’s decision on the rate increase and added that there is no preview beyond September of what will be the appropriate pace of tightening.

On Tuesday, ECB’s Rehn, one of the hawks of the central bank, said that inflation in the EU has broadened and remains stronger and added he backs up a rate increase of more than 25 bps in September.

Elsewhere, Fed speakers had been unleashed and are crossing wires. The Richmond Fed President Thomas Barkin said that the Fed would have to restrict monetary policy, but the question is how much. He emphasized that the Fed needs to be flexible and commented that after the UoM survey, he felt it was possible to go 75 bps.

Barkin added that 50 or 75 bps in July are reasonable and commented that inflation would go down once supply chain issues are resolved.

In the meantime, the US economic docket featured the Chicago Fed National Activity Index, which went down to an eight-month low of 0.01 in May from 0.40 in April. Later, Existing US Home Sales declined by 3.4% to 5.41 million in May 2022, the lowest level since June 2020.

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