EUR/USD looks vulnerable near 1.0660 as yields soar amid hawkish Fed bets

• EUR/USD is prone to more downside as it has surrendered the critical support of 1.0660 amid the risk-off mood.
• Escalating odds of a revival in US inflation have fueled US Treasury yields.
• The ECB is expected to continue its 50 bps policy tightening spree till the May policy meeting.

The EUR/USD pair is on the verge of delivering a sheer downside move as it is looking vulnerable below the critical support of 1.0660 in the Asian session. The downside bias in the major currency pair is backed by soaring US Treasury yields, which is demonstrating a significant decline in the risk appetite of the market participants.

S&P500 futures have carry-forwarded Wednesday’s bearish trading session amid a fourth consecutive contraction in the United States ISM Manufacturing PMI. The Manufacturing PMI has been contracting for the past four months. The US Dollar Index (DXY) is aiming to deliver a break above the immediate resistance of 104.30 amid the risk aversion theme. The return offered on 10-year US Treasury bonds has scaled to near 4.03%.

A scrutiny of US ISM Manufacturing PMI data is delivering cues pointing to a recovery in the Consumer Price Index (CPI). A strong jump in the New Orders Index data to 47.0 from the expectations of 43.7 and the former release of 42.5 is portraying a bright outlook.

Apart from that, Manufacturing Prices Paid jumped to 51.3 from the expectations of 45.0. Producers might look for passing the impact of higher prices paid to the ultimate consumers, which will trigger the inflation spiral again. Therefore, the Federal Reserve (Fed) believes that halting more rates announcement would be premature at the current stage.

On the Eurozone front, a rebound in the German Harmonized Index of Consumer Prices (HICP) has cleared that inflation is exceptionally stubborn. Therefore, more rate hikes from the European Central Bank (ECB) cannot be ruled out.

Analysts at Goldman Sachs have revised their guidance on interest rates for the ECB higher. The ECB to raise its rate by 50 basis points (bps) in May, compared to the 25 bps rate. A rate hike of 50 bps for March monetary policy has already been announced by ECB President Christine Lagarde. The investment banking firm forecasts a peak for the ECB rates at 3.75% by June versus the previous forecast of 3.50%.