EUR/USD sees more weakness below 1.0660 as investors expect a surprise upside in US CPI

• EUR/USD is expected to display a downside below 1.0660 as the street fears a surprise rise in US inflation.
• Fed policymakers see interest rates higher for a more extended period as inflation is still elevated.
• ECB policymakers have been reiterating that Eurozone won’t face a deep recession, if it happens it will be shallow.

The EUR/USD pair has showed a pullback move to near 1.0680 in the early Tokyo session. The pullback move by the major currency pair seems to lack strength and is facing barricades in extending its gains. The shared currency asset is likely to display more weakness after surrendering the immediate support of 1.0660 as the risk-aversion theme is gaining more strength.

S&P500 showed recovery late Friday but ended the week on a bearish note amid fresh concerns of a further slowdown in economic activities ahead of the release of the United States Consumer Price Index (CPI), portraying a dismal market mood. Tuesday’s US inflation data will set the undertone for March’s monetary policy meeting by the Federal Reserve (Fed).

The US Dollar Index (DXY) refreshed its two-day high at 103.35 and is expected to deliver further upside amid the risk of a rebound in the declining US inflation trend. The demand for US government bonds remained extremely weak as the street is expecting a surprise upside in the US inflation after a bumper US Nonfarm Payrolls (NFP) report. This supported the 10-year US Treasury Yields to record a fresh monthly high at 3.74%.

A Reuters poll indicates that the monthly headline CPI and core inflation that excludes oil and food prices will escalate by 0.4%. This might force Fed chair Jerome Powell and his mates to look for more interest rate hikes ahead as the battle against inflation could get complex. Last week, Fed policymakers favored the context of higher interest rates for a more extended period as the inflationary pressures are still elevated as the healthy labor market could propel consumer spending.

On the Eurozone front, investors are awaiting the release of the Gross Domestic Product (GDP) (Q4) data, which will release on Tuesday. As per the consensus, the economic data for the quarter and on an annual basis is similar to its former releases at 0.1% and 1.9% respectively. This indicates that the Eurozone economy has not seen a recession in CY2022. Also, European Central Bank (ECB) policymakers have been reiterating that Eurozone won’t face a deep recession, if it happens it would be shallow as the signs of recovery are extremely solid.