EUR/USD hovers around 1.0850 ahead of Eurozone PMI, US Dollar remains stable

EUR/USD strives to retrace its recent losses, trading slightly higher near 1.0850 during the Asian session on Wednesday. However, the Euro (EUR) encountered downward pressure following the preliminary Consumer Confidence released by the European Commission on Tuesday, indicating a decrease in consumer trust regarding economic activity. The index declined to -16.1 against the expected reading of -14.3 in January and the previous reading of -15.0.

Market participants will observe the HCOB Purchasing Managers Index (PMI) data from the Eurozone and Germany on Wednesday. Thursday marks another rate call and the release of a monetary policy statement from the European Central Bank (ECB). The ECB has generally predicted a stable interest rate environment until the summer months unless there are significant shifts in the underlying economic indicators.

The US Dollar Index (DXY) maintains its stability following a recent increase, driven by ongoing buying interest in the US Dollar amid risk aversion sentiment. This behavior is likely linked to heightened geopolitical tensions in the Middle East. However, the decline in short-term US Treasury yield could undermine the US Dollar, which in turn, acts as a tailwind for the EUR/USD pair. The 2-year US yield trades lower at 4.33%, down by 0.87%, by the press time.

Market sentiment indicated a decreased probability of a rate cut by the Federal Reserve in March. Nevertheless, there is complete pricing in of a 25 basis point (bps) cut, and the likelihood of a more significant 50 bps cut stands at 50% in May. Traders are likely awaiting the release of the S&P Global Purchasing Managers Index (PMI) data from the United States on Wednesday.