EUR/USD eyes YTD high as US Dollar weakens on lower US Treasury yields

• Mixed manufacturing US economic data and falling US T-bond yields, a tailwind for the EUR/USD.
• Investors have almost entirely priced in a 25 bps rate hike by the Fed, as shown by the CME FedWatch Tool.
• ECB policymakers call for further tightening, considering a 25 or 50 bps hike at the May meeting.

The Euro (EUR) finished Monday’s session positive, as the US Dollar (USD) weakened across the FX board, influenced by lower US Treasury bond yields. Manufacturing activity in the United States (US) showed mixed signs. Wall Street finished with losses as investors brace for next week’s US Federal Reserve Open Market Committee (FOMC) decision. The EUR/USD is trading at 1.1044, about to test the YTD high at around 1.1075.

EUR/USD steady as US economic data disappoints, ECB hints at tightening

As the Asian session begins, the EUR/USD is almost flat. The US economic docket featured the March Chicago Fed National Activity Index (CFNAI), which plummeted to -0.19, above estimates of -20, unchanged from February’s reading. The three-month moving average ticked up to 0.01%, indicating that the economy continues to expand slowly. Later, the April Dallas Fed Manufacturing Business Index slid to -23.4, well below the -11.00 estimated, as the survey showed that perceptions of broader business conditions worsened.

In the meantime, the CME FedWatch Tool foresees a 95.4% chance that the US Federal Reserve will hike rates to the 5.00%-5.25% range the following week.

US Treasury bond yields dropped, a headwind for the greenback, as shown by the US Dollar Index (DXY). The DXY is dropping 0.40%, down at 101.322, bolstering the Euro’s rally past the 1.1040 area.

Across the pond, European Central Bank (ECB) policymakers continued to cross newswires, with most expressing that further tightening is needed due to high inflation pressures. The ECB Governing Council member Isabel Schnabel commented that an increase of 50 bps at the May meeting is not off the table.

Data-wise, Germany’s IFO Business Climate Conditions and Expectations improved compared to March’s figures, spurring a jump in the EUR/USD pair towards the 1.1000 area.

EUR/USD Key Technical Levels