EUR/USD drops to near 1.0650 ahead of Fed policy

EUR/USD continues its decline for the second consecutive day, hovering around 1.0650 during Asian trading hours on Wednesday. With European markets largely closed for Labour Day, investors are expecting the Federal Reserve's (Fed) latest policy decision.

The US Dollar Index (DXY), which gauges the performance of the US Dollar (USD) against six major currencies, continues its rally following higher than expected Employment Cost Index data released on Tuesday. Additionally, hawkish remarks from Fed officials, signaling no immediate need for rate cuts, undermined the EUR/USD pair.

In the first quarter, the US Employment Cost Index surged by 1.2%, representing the largest increase in a year and exceeding both expectations of 1.0% and the previous figure of 0.9%. This recent data underscores prevailing wage pressures, which have the potential to magnify the impact of persistent inflation within the US economy.

Traders are anticipated to closely monitor the release of the ADP Employment Change and ISM Manufacturing PMI from the United States (US) on Wednesday, preceding the Fed's Monetary Policy Statement. These releases are likely to offer additional insights into the current state of the US economy.

On the Eurozone front, the Euro failed to sustain its gains despite robust Eurozone data released on Tuesday. The Eurozone Gross Domestic Product (GDP) expanded by a higher than expected 0.3% in the first quarter.

Furthermore, the Harmonized Index of Consumer Prices (HICP) has shown steady growth year-over-year, meeting expectations, while core HICP, excluding food and energy prices, has softened but still exceeded estimates.

Investor confidence remains strong regarding the European Central Bank (ECB) potentially implementing interest rate cuts in June, as a majority of ECB policymakers have expressed support for such a move.