EUR/USD remains on the defensive amid modest USD strength, downside seems cushioned

• EUR/USD witnessed fresh selling on Friday and eroded a part of the overnight gains to a weekly high.
• The emergence of some USD buying was seen as a key factor that exerted pressure on spot prices.
• Sliding US bond yields, a positive risk tone could cap gains for the USD and help limit deeper losses.

The EUR/USD pair came under renewed selling pressure on the last day of the week and moved further away from the weekly high, around the 1.0600 mark touched on Thursday. The pair extended its steady intraday descent through the early European session and was last seen trading near the daily low, around the 1.0500 psychological mark.

The US dollar stalled the post-FOMC retracement slide from a two-decade high and was back in demand on Friday, which, in turn, was seen as a key factor exerting downward pressure on the EUR/USD pair. The USD uptick comes amid expectations that the Fed would stick to its aggressive policy tightening path to combat stubbornly high inflation.

In fact, the Fed's so-called dot plot showed that the median projection for the rate stood at 3.4% for this year and 3.8% in 2023. Investors, however, took comfort from the view that the rate is forecast to decline to 3.4% in 2024 and 2.5% over the long run, which was evident from the ongoing downfall in the US Treasury bond yields.

Apart from this, signs of stability in the financial markets could act as a headwind for the safe-haven USD and help limit deeper losses for the EUR/USD pair, at least for the time being. Market participants now look forward to the release of the final Eurozone CPI print for a fresh impetus ahead of Fed Chair Jerome Powell's speech later this Friday.

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