EUR/USD struggles around 1.0980 as USD Index looks set for a recovery, Fed’s Beige Book in focus

• EUR/USD is facing hurdles while stretching its recovery above 1.0980 as USD Index has rebounded
• S&P500 futures are adding losses as investors have turned more cautious after disappointing quarterly results.
• The commentary from Fed Bullard curtailed the risk of recession in the second half of 2023.

The EUR/USD pair is facing barricades in extending its recovery above the immediate resistance of 1.0980 in the early European session. The upside in the major currency pair looks capped as US Dollar Index (DXY) has shown strength after a correction to near 101.65. The USD Index is making efforts to extend its recovery above 101.80 as one more rate hike by the Federal Reserve (Fed) is widely anticipated.

S&P500 futures are adding losses in the Asian session as investors have turned more cautious after disappointing corporate profits. Goldman Sachs, Johnson & Johnson (J&J), and Netflix delivered a poor earnings show and forced the 500-US stock basket to surrender entire gains.

Meanwhile, US Treasury yields are showing resilience as the Fed is highly expected to raise rates further. St. Louis Fed President James Bullard advocated for the continuation of the policy-tightening spell by the central bank considering the fact that labor market data is still solid, as reported by Reuters. Fed policymaker further added that demand for labor has not softened yet and a strong labor market leads to strong consumption, which fades the context of having a recession in the second half of 2023.

This week, the release of the Fed’s Beige Book will be the key catalyst. Detailed information of 12 Fed districts about their economic condition will convey the ground situation of the US economy and will help in understanding further prospects.

On the Eurozone front, persistent inflation due to a shortage of labor and an expected recovery in oil prices would accelerate the odds of a bigger rate hike from the European Central Bank (ECB). ECB President Christine Lagarde is expected to raise interest rates by 25 basis points (bps) to weigh on inflationary pressures.