- EUR/USD is facing resistance in extending its recovery above 1.1000 amid hawkish Fed bets.
- The USD Index rebounded after a fresh annual low despite Retail Sales contracting more than anticipated.
- ECB policymakers are divided over interest rate guidance for the May meeting.
The EUR/USD pair is struggling to extend its recovery above the psychological resistance of 1.1000 in the early Asian session. The major currency pair is facing hurdles in stretching its recovery above 1.1000 as chances for one more rate hike from the Federal Reserve (Fed) remain firm despite a decline in retail demand by households.
Monthly Retail Sales data (Mar) released on Friday showed a contraction of 1.0%, higher than the expectations of a 0.4% decline and the former contraction of 0.2%. The demand for automobiles remained weak as higher inflation and tight labor conditions for households are weighing the burden on them.
S&P500 futures settled Friday’s session with some losses as investors remained cautious that one more rate hike from the Fed and tight credit conditions by United States commercial banks would squeeze out liquidity significantly. The CME Fedwatch tool is indicating more than 98% of investors are in favor of one more 25 basis points (bps) rate hike from the Fed.
The odds for further policy tightening by the Fed heightened after hawkish commentary from Fed Governor Christopher Waller. Fed Waller said on Friday that despite a year of aggressive rate increases, U.S. central bankers "haven't made much progress" in returning inflation to their 2% target and need to move rates higher still. He further added “The job on inflation was still “not done,” as inflation remains “far too high.”
The US Dollar Index (DXY) showed a recovery move after printing a fresh one-year low of 100.79 as Fed’s rate-hiking show is far from over.
On the Eurozone front, mixed views from European Central Bank (ECB) policymakers have shifted investors to the sidelines. ECB policymaker Pierre Wunsch said on Friday, “The policy decision in May is between 25-and 50-basis-point rate hikes,” although “size depends in large part on April core inflation.”
However, ECB Governing Council member Mario Centeno advocated a pause or a slowing in the interest rate hike spell, as reported by Bloomberg.
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