EUR/USD halts a two-day winning streak on improved US Dollar, edges lower to near 1.0760

• EUR/USD retreats as US Dollar improves on market optimism.
• US PPI and Consumer Sentiment Index will be released on Friday.
• US Retail Sales (MoM) declined by 0.8% in January against the expected 0.1% decline.
• ECB's forward-looking wage tracker suggests wage pressures after the stable GDP data.

EUR/USD retreats after two days of gains, which could be attributed to the market optimism despite disappointing Retail Sales data from the United States (US). However, the market shows optimism for the US Dollar (USD) ahead of US Producer Price Index (PPI) data and Michigan Consumer Sentiment Index due on Friday. The EUR/USD pair edges lower to near 1.0760 during the Asian session on Friday. The improved US yields contribute upward support for the Greenback against the Euro (EUR).

The US Dollar Index (DXY) holds ground on the market bias that the US Federal Reserve (Fed) will avoid rate cuts in March and May. FedWatch Tool shows a 53% likelihood of a 25 bps rate cut in May. The US Dollar faced challenges following weaker US Retail Sales data. However, the reduced Initial Jobless Claims might have provided some support to hold USD.

US Retail Sales declined by 0.8% Month-over-Month in January. The market was expecting a decline of 0.1% against the previous increase of 0.4%. While Retail Sales Control Group decreased by 0.4% in January, swinging from the previous increase of 0.6%. However, US Initial Jobless Claims reported 212,000 unemployment claims for the week ending on January 9, against the market expectation of remaining consistent at 220,000.

Federal Reserve Bank of Atlanta President Raphael W. Bostic expected improvement in curbing inflation but it could be bumpy. Bostic mentioned that if inflation retreats faster, it could reassess his stance on the interest rates outlook.

On the other side, the recent Eurozone Gross Domestic Product (GDP) data for the fourth quarter showed no change. Despite this, the ECB's forward-looking wage tracker indicates robust wage pressures.

Christine Lagarde, President of the European Central Bank (ECB), commented that recent data indicates continued subdued economic activity in the near term. Lagarde emphasized the significance of instilling confidence to achieve the ECB's 2% inflation target while acknowledging the persistent disinflationary trend.