EUR/USD declines towards 1.0530 as Fed’s Powell endorses more rates

• EUR/USD is declining towards 1.0530 as Fed’s Powell has confirmed that current monetary policy is not restrictive enough.
• A dead cat bounce move by the S&P500 futures has faded as the risk-aversion theme is strengthening further.
• ECB Knot sees more interest rate hikes beyond March amid solid inflationary pressures.

The EUR/USD pair has delivered a downside break of the consolidation around 1.0550 in the Asian session. It seems that the major currency pair has resumed its downside journey and is expected to deliver more losses amid negative market sentiment. The shared currency pair is expected to find a cushion around 1.0530.

A dead cat bounce move by the S&P500 futures has faded as the risk-aversion theme is strengthening further. The US Dollar Index (DXY) has already pushed its upside to a three-month high above 105.60 and is expected to deliver gains amid a sheer improvement in safe-haven’s appeal. The 10-year US Treasury yields have scaled above 3.97%.

Mounting recession fears in the United States economy after an extremely hawkish commentary from Federal Reserve (Fed) chair Jerome Powell while testifying before Congress has strengthened the US Dollar. Fed’s Powell is considering more rates as ‘fit and proper’ to scale down the red-hot inflation. He has confirmed that the current monetary policy is not restrictive enough to bring down inflation to desired levels.

Consideration of a higher terminal rate than previously anticipated has stemmed from exceptionally higher payrolls reported in January. Earlier, Fed Governor Christopher Waller cited February’s economic data as a one-time blip and the price pressures will resume their downtrend from next month. Therefore, investors will get more clarity after the release of the US Automatic Data Processing (ADP) Employment Change (Feb) data, which is seen higher at 200K vs. the former release of 106K.

On the Eurozone front, investors are shifting their focus toward German Retail Sales (Jan) data. The monthly data is expected to deliver an expansion by 2.0% vs. a contraction of 5.3% released earlier. This could propel inflationary pressures as a recovery in retail demand could trigger the German Consumer Price Index (CPI) ahead.

European Central Bank (ECB) policymaker Klaas Knot said on Tuesday that the ECB can be expected to keep raising interest rates for “quite some time” after March. According to him, the current pace of hikes could continue into May if underlying inflation does not materially abate.