EUR/USD retreats from 1.0600, downside looks likely despite higher ECB rate peak guidance

The EUR/USD pair has picked bids after dropping to near the round-level support of 1.0600 in the early Asian session. The major currency pair has turned sideways around 1.0620 but is likely to witness pressure amid negative market sentiment.

The US Dollar Index (DXY) has corrected gradually to near 104.60 after a firmer rally to near 104.80 as investors parked their funds in safe-haven to dodge sheer volatility. S&P500 witnessed an intense sell-off on Thursday as recession risk soars after the Federal Reserve (Fed) hiked interest rate guidance as the road to success on roaring inflation is far from sight.

On Thursday, the Euro bulls displayed wild gyration after the European Central Bank (ECB) President Christine Lagarde hiked interest rates by 50 basis points (bps) to 2.50%. The EUR/USD pair printed a fresh six-month high at 1.0700 but failed to hold gains and dropped significantly.

The commentary from ECB President that food and energy inflation will continue to rise from January has created havoc among investors in the Eurozone economy. The households are already facing tremendous pressure due to the higher headline Consumer Price Index (CPI) and further escalation in catalysts will dampen the market mood. ECB’s Lagarde sees two more 50 bps rate hikes consecutively to contain inflation, which indicates higher inflation peak guidance than estimated earlier at 3%.

On the United States front, investors are awaiting S&P PMI data for further guidance. As per the consensus, the preliminary Manufacturing PMI would remain steady at 47.7 while the Services PMI  might escalate to 46.8 from the former release of 46.2.