EUR/USD corrects from 1.0860 as yields rebound, ECB sees interest rate peak by Summer

• EUR/USD has slipped marginally to near 1.0860 as the strength of the risk-on mood has eased.
• Fed Bostic has favored a 25 bps rate hike culture amid slowing US inflation.
• The ECB is expected to reach the terminal rate by the Summer.

The EUR/USD pair has sensed marginal selling pressure after failing to surpass the immediate resistance of 1.0860 in the Tokyo session. The major currency pair is demonstrating signs of a loss in the upside momentum amid a recovery in the alpha generated by the US Treasury bonds. The 10-year US Treasury yields have rebounded to near 3.46%.

An interim rebound in the risk-aversion theme is impacting the S&P500 futures. The US equities are facing pressure after three-day consecutive bullish sessions, portraying a short-term caution amid an overall upbeat market mood. The US Dollar Index (DXY) is hovering below 102.00, displaying a lackluster profile.

After a meaningful downtrend in the United States inflation, it would be worthy to claim that the Federal Reserve (Fed) is in a comfortable position now and might look to scale down the extent of the interest rate hike ahead. Thursday’s release of lower inflation print has already changed the viewpoint of Fed policymakers.

Atlanta Fed Bank President Raphael Bostic who said on Monday that it is ''fair to say that the Fed is willing to overshoot,'' is now saying that he would be comfortable moving with 25 basis points (bps) interest rate hike culture. He further added that data showing inflation slowed in December "was really welcome news" that may allow the U.S. Fed to scale back to quarter-point rate increases at its upcoming meeting.

On the Eurozone front, the spree of the interest rate hike by the European Central Bank (ECB) is expected to terminate by the Summer. After ECB governing council member Mario Centeno, another ECB member, and French central bank governor Francois Villeroy de Galhau cited, the central bank should aim to reach the terminal rate by the summer. He further added that ECB needs to be pragmatic about the pace of rate hikes.