Fed's Rate Hike Robust Economic Data

EUR/USD Benefits from Soft US Consumer Sentiment Data

The EUR/USD pair extended its gains to reach levels around 1.0670 during Monday's Asian session. This upward momentum comes on the heels of disappointing US consumer sentiment data released on Friday. The preliminary US Michigan Consumer Sentiment Index recorded a reading of 67.7, signaling a decline from the previous figure of 69.5, and falling below the expected 69.1 for September. This weakening sentiment has put pressure on the US Dollar (USD).

US Dollar Index and Treasury Yields

Despite finishing the ninth week with a 0.26% gain, the US Dollar Index (DXY) is currently trading lower around 105.30. US Treasury yields have also retraced intraday gains, with the yield on the US 10-year bond falling to 4.32%. These developments are adding downward pressure on the US dollar, further supporting the EUR/USD pair.

Strong US Economic Data and Fed's Likely Course

In the past week, the US has consistently reported robust economic data. Key indicators, such as the Consumer Price Index (CPI), Retail Sales, and Jobless Claims, have surpassed predictions, painting a favorable economic outlook. These positive signals reinforce the belief that the US Federal Reserve (Fed) is inclined to pursue another interest rate hike by the end of 2023.

Central Banks' Stance

On one side of the Atlantic, the European Central Bank's (ECB) President Christine Lagarde stated that the ECB did not contemplate further rate cuts. Instead, the ECB aims to keep interest rates elevated for an extended period, with flexibility to raise them if needed. This cautious but adaptable approach underlines the ECB's monetary policy stance.

Upcoming Events and Forex Market Impact

In the upcoming week, traders will closely monitor Eurozone events, including the release of the Eurozone Harmonized Index of Consumer Prices (HICP) for August and the preliminary HCOB Composite PMI for September. These data releases will likely provide trading opportunities within the EUR/USD pair. As the Forex market continues to react to central bank policies and economic data, the upcoming Federal Reserve interest rate decision will be a significant event to watch. Forex traders will scrutinize the Fed's communications for insights into future interest rate directions.