EUR/USD struggles to surpass 1.0980 as USD Index rebounds, US Inflation hogs spotlight

• EUR/USD has faced selling pressure while extending its recovery above 1.0980 as the USD index has shown recovery.
• US monthly headline and core CPI figures are expected to jump by 0.4%.
• ECB Schnabel believes that rate cuts are unlikely for the foreseeable future.

The EUR/USD pair is facing barricades in extending its recovery above the immediate resistance of 1.0980 in the early European session. The shared currency pair has sensed pressure as the US Dollar Index (DXY) has shown some recovery. The upside bias in the major currency pair has not faded yet as the recovery in the USD Index is required to pass plenty of filters.

S&P500 futures are holding nominal gains added in Asia, portraying some ease in the risk-aversion theme. The USD index has shown some recovery after correcting to near 101.53 as investors have turned anxious ahead of the United States inflation data.

As per the US Consumer Price Index (CPI) preliminary report, annual headline inflation is seen steady at 5.0%. Core CPI that strips off the impact of volatile food and oil prices is seen softening mildly to 5.5% from the former release of 5.6%. Meanwhile, monthly headline and core CPI figures are expected to jump by 0.4%. An expression of consistently increasing inflation could compel the Federal Reserve (Fed) to reconsider its neutral tone conveyed in the previous monetary policy meeting.

The expectations for a neutral policy by the Fed have also been impacted after the hawkish commentary from New York Fed Bank President John Williams has also added to the overall uncertainty in the market. Fed policymaker cited that the central bank needs to be data-dependent with monetary policy and reminded that the Fed will raise rates again if needed. He further added that the Fed has not said it’s done with raising rates and see no reason for rate cuts this year.

On the Eurozone front, more interest rate hikes from the European Central Bank (ECB) are in the pipeline as Eurozone inflation is far from the desired rate. Isabel Schnabel, a member of the ECB's Executive Board, stated on Tuesday that there is no doubt that the ECB will have to take additional measures to bring inflation back to target. She further added that core inflation has not seen a turnaround like the headline CPI. According to her, rate cuts are unlikely for the foreseeable future.