EUR/USD drops to 1.5-month low as Fed rate hike fears fuel US Dollar, yields

EUR/USD bears keep the reins around 1.0630, the lowest level in six weeks while portraying a three-day downtrend during early Friday.

The major currency pair’s latest fall seems akin to the broad US Dollar run-up and mixed clues from the European Central Bank (ECB) officials.

While printing the greenback’s run-up, the US Dollar Index (DXY) grinds near the 1.5-month top surrounding 104.30, marked earlier in Asia. In doing so, the US Dollar’s gauge versus the six major currencies cheers the hawkish concerns about the Federal Reserve’s (Fed) next move amid strong US data and upbeat comments from the Fed policymakers.

A slew of US statistics concerning inflation, employment and output underpin the force that pushes back the Fed’s policy pivot talks. The fashion could be witnessed in the latest comments from the Fed officials and the FEDWATCH tool, observed via Reuters.

At home, the ECB’s monthly bulletin and the latest comments from the policymakers, including executive board member Fabio Panetta and Chief Economist Philip Lane, signal the need for a cautious monetary policy move amid economic jitters.

Elsewhere, the recent fears of more US-China tussles over the spy balloon and Taiwan also bolster the US Dollar’s safe-haven demand, which in turn weighs on the EUR/USD price.

Against this backdrop, S&P 500 Futures mark 0.30% intraday losses to 4,086 while poking the weekly low after falling the most in a month on Thursday. Additionally, the US 10-year Treasury bond yields rise to a fresh high since December 30, 2022, whereas the two-year US Treasury bond also renews the highest levels since November 2022, making rounds to 3.88% and 4.68% in that order.

Moving on, a light calendar and the well-set hawkish Fed concerns, versus doubts over the ECB’s future rate hikes, the EUR/USD is likely to remain bearish ahead of next week’s monetary policy meeting minutes of the Federal Open Market Committee (FOMC).

Technical analysis

A clear downside break of the three-month-old support line, now resistance around 1.0710, joins the 50-day Exponential Moving Average (EMA) breakdown, close to 1.0675 at the latest, to keep EUR/USD bears hopeful of meeting the previous monthly low of 1.0483.