EUR/USD falls toward 1.0600 on higher expectations of the Fed prolonging higher rates

• EUR/USD extends its losing streak as the Fed is expected to maintain higher interest rates for an extended period.
• US Retail Sales (MoM) experienced a 0.7% increase in March, against the expected 0.3% and 0.9% prior.
• The dovish remarks from the ECB’s officials contribute to downward pressure on the Euro.

EUR/USD continues to lose ground for the sixth successive session, trading near 1.0610 during the Asian hours on Tuesday. The elevated US Dollar (USD) is exerting pressure on the EUR/USD pair, potentially influenced by the higher US Treasury yields. Furthermore, better-than-expected Retail Sales figures from the United States (US) have amplified expectations that the Federal Reserve (Fed) may maintain higher interest rates for an extended period.

US Dollar Index (DXY) extends its gains to near 106.20, with 2-year and 10-year yields on US Treasury bonds standing at 4.92% and 4.60%, respectively, at the time of writing. Escalating geopolitical tensions in the Middle East are prompting investors to flock towards the safe-haven US Dollar (USD) as a refuge.

US Retail Sales (MoM) increased by 0.7% in March, exceeding the market expectations of 0.3%. The previous reading was revised to 0.9% from 0.6% in February. Retail Sales Control Group rose by 1.1% against the previous increase of 0.3%.

Federal Reserve (Fed) Bank of San Francisco President Mary Daly recently stated that while there has been notable progress on inflation, there is still further ground to cover. She emphasized the importance of being confident that inflation is on a path toward the target before taking action. Daly also highlighted that the economy is experiencing solid growth, the labor market remains robust, and inflation is currently above the target level.

The Euro depreciates following dovish remarks from European Central Bank (ECB) officials on Monday. Gediminas Šimkus, a member of the ECB Governing Council, stated that there is a greater than 50% likelihood of witnessing more than three rate cuts this year, according to Reuters.

Additionally, ECB Chief Economist Philip Lane highlighted that there has been notably less progress concerning domestic inflation compared to broader inflation measures. Despite potential near-term fluctuations in the inflation outlook, the projected convergence of inflation to the target by 2025 remains supported.