EUR/USD breaks above 1.0600 as yields extend losses, US PCE Inflation in focus

• EUR/USD is aiming to shift its business above 1.0600 as US yields drop.
• An increment in US PCE Inflation data will bolster the expectations of further rate hikes by the Fed.
• The ECB is expected to deliver three more interest rate hikes to tame persistent inflation.

The EUR/USD pair rebounded firmly after dropping below 1.0580 in the late New York session. The major currency pair has recaptured the round-level resistance of 1.0600 and is looking to sustain above the same. The shared currency pair has shown some resilience as the demand for US Treasury bonds has improved.

Investors are showing some interest in the US government bonds as volatility associated with the context of further policy tightening by the Federal Reserve (Fed) to tame stick inflation is cooling off. This has led to a decline in the 10-year US Treasury yields to 3.87%.

The US Dollar Index (DXY) corrected to near 104.20 and is expected to remain on the tenterhooks ahead of the release of the United States Personal Consumption Expenditure (PCE) Price Index data. Meanwhile, S&P500 futures have recovered a majority of their recent losses displayed in the early Asian session, portraying a recovery in the risk appetite theme.

A strong labor market and a revival in consumer spending in the United States economy have confirmed that inflationary pressures are persistent and it would be premature to announce victory in the battle against stubborn inflation. Therefore, the street is expecting more rates from Fed chair Jerome Powell ahead. Economists at TD Securities expect two more interest rate hikes in March and May.

On the Eurozone front, investors have shifted their focus toward the release of the Harmonized Index of Consumer Prices (HICP) data. Analysts at SocGen expect “With the delayed German inflation release printing at 9.2%, which is above the 8.5/8.6% estimate that we believe Eurostat used, the final euro area HICP figure may be revised up from 8.5% to 8.6%. For core and the other major components, there is more uncertainty over whether they will be revised, especially with Germany only releasing data on the headline figure.”

The European Central Bank (ECB) is continuously making efforts in bringing down inflationary pressures by hiking interest rates. Goldman Sachs has come forward with an interest rate projection for the European Central Bank. The investment banking firm said in addition to an increase of 50 basis points in March and 25 basis points in May, it is estimating a 25 basis-point hike in June.