- EUR / USD regains ground in Thursday’s Asian session.
- The US dollar index turns slightly negative amid declining Treasury yields.
- The weakening of the Fed, the limit on US debt and rising energy prices gave mixed responses for EUR / USD.
EUR / USD made minor gains during Thursday’s Asian session. After registering a record daily drop of almost 100 pips during the overnight session, the pair hovered in a narrow 10 pips trading band. As of this writing, EUR / USD is trading at 1.1606, up 0.08% for the day.
The US Dollar Index (DXY), which tracks the performance of the greenback against the six major currencies, reduced some of its initial gains. Nonetheless, it still looks solid above 94.20 keeping EUR / USD gains limited.
Strong buying pressure on the greenback pushed EUR / USD below 1.1600, the lowest level since July 2020. Investors remain invested in the dollar as expectations of a reduction in the stimulus package of the dollar. Federal Reserve could start as early as November and a possible interest rate hike in late 2022. On top of that, concerns from heads of major central banks, including the United States, the ECB and the United Kingdom, regarding the outlook for inflation and growth also supported the US dollar. US Fed Chairman Jerome Powell, speaking at an ECB forum, said it was difficult for the central bank to balance high inflation and still high unemployment.
Meanwhile, traders remained cautious about the deadline to avoid a U.S. government shutdown on Thursday. U.S. Senate Leader Schumer remained ready for a vote on an interim bill to maintain government funding until December 3.
On the other hand, the common currency remained depressed against a background of divergence between the ECB’s position and that of the United States on tapering. ECB President Christine Lagarde avoids tightening monetary policy by saying not to overreact to transient supply shocks. On the economic data side, consumer confidence in the euro area stood at -4.0 in September, down from -5.3 in the previous month, while service sentiment fell from 15.1 in September against 16.8 in August.
For now, traders are waiting for data from the German Harmonized Index of Consumer Prices, Unemployment Rate, Eurozone Unemployment Rate and U.S. Gross Domestic Product (GDP) to gain further trading momentum. .