EUR/USD stabilizes above 1.0700 despite Fed’s Powell confirming further policy tightening

• EUR/USD has shifted its business above 1.0700 despite hawkish Fed commentary.
• Fed’s Powell has given the green signal to policy tightening continuation amid a strong job report.
• ECB Schnabel has advocated for a 50 bps interest rate hike in March.

The EUR/USD pair has shifted its auction profile above the round-level resistance of 1.0700 in the early Asian session. The major currency pair rebounded firmly after dropping to near 1.0670. The recovery move in the shared currency pair is looking to extend its recovery above the immediate resistance of 1.0725 ahead.

The Euro has gained strength despite hawkish commentary by Federal Reserve (Fed) chair Jerome Powell. The US Dollar Index (DXY) dropped to near 102.70 after failing to sustain above the 103.50 resistance. S&P500 futures recovered firmly after terminating the two-day winning streak as the confirmation of further policy tightening by the Fed chair Jerome Powell was already anticipated by the market participants. Therefore, the speech from Fed Powell triggered the ‘Sell on Rumor and Buy on News’ indicator.

A sheer recovery in the 500-US stock basket is portraying an improvement in the risk appetite of the market participants. Meanwhile, the demand for US government bonds weakened further as the Fed will keep higher interest rates steady for a longer period along with more interest rate hikes. This led to a jump in the 10-year US Treasury yields to near 3.68%.

Fed Powell cited “The jobs report was certainly stronger than anyone expected and the strong jobs report shows you why we think that inflation taming will be a process that takes a significant period of time.”

On the Eurozone front, Isabel Schnabel, a Member of the European Central Bank (ECB)’s Executive Board, wrote in a press release entitled, 'Monetary policy in times of pandemic and war' that inflation momentum remains ‘quite elevated,‘ but cannot give all clear on inflation yet and that the ECB Intends to raise rates by 50bps in March.

There is no denying the fact that Eurozone inflation has slowed down significantly in the past two months and activities are also showing contraction. In spite of that, the road of a 2% inflation recovery is far from over, which bolsters the case of further interest rate hikes by the ECB.