- EUR/USD trades around 1.0580 close to the lowest levels since March.
- ECB President Christine Lagarde stated that rates will remain restrictive for as long as necessary.
- Investors focus on upcoming economic data releases, seeking inflationary pressures in both economies.
- Cautious market sentiment and higher US Treasury yields are contributing support for the potential of the US Dollar (USD).
EUR/USD continues to move on the downward path, trading lower around 1.0580 during the early trading hours of the Asian session on Tuesday.
The pair has posted the lowest close on Monday since March despite the European Central Bank (ECB) President Christine Lagarde's statement at the European Parliament that rates will remain restrictive for as long as necessary.
However, Lagarde has also highlighted that inflation is expected to remain "too high for too long." However, the ECB faces a challenging situation, as it must carefully navigate the delicate balance between addressing inflationary pressures and not harming an uneven domestic economy in the Eurozone.
The US Dollar Index (DXY) hovers near 106.00 at the time of writing, although it's below its highest level since November. The US Dollar (USD) is maintaining its strength, partly due to cautious market sentiment and higher US Treasury yields.
The yield on the 10-year US Treasury note improved to 4.55%, a level that hasn't been observed since October 2007. The expectation of high-interest rates persisting for an extended period is rooted in the resilience of the US economy.
As per Reuters, US President Joe Biden and one of his senior advisers have issued warnings about the potential consequences of a federal government shutdown. They expressed concerns that such a shutdown could lead to widespread difficulties, including the loss of food benefits for nearly 7 million low-income women and children.
The statement indicates that there was a prior agreement between President Joe Biden and House Speaker Kevin McCarthy on government spending levels. However, it's noted that the Republican-controlled House of Representatives may attempt to pass significant budget cuts this week.
These cuts would be subject to approval by the Democratic-controlled Senate, which is expected to reject them. If both houses fail to reach an agreement on government spending, it could lead to a partial government shutdown by the following Sunday.
Investors await the release of the US Federal Reserve's (Fed) preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, and the Eurozone’s Core Harmonized Index of Consumer Prices (HICP), which are scheduled for Friday.
These datasets may provide crucial insights into the inflationary pressures in both economies and could impact trading decisions on the EUR/USD pair.
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