EUR/USD stabilizes above 1.0900, more upside seems favored as Fed-ECB policy divergence narrows

The EUR/USD pair is demonstrating back-and-forth action around 1.0940 in the early European session. The major currency pair has turned sideways after a sharp upside propelled by narrowing Federal Reserve (Fed)-European Central Bank (ECB) policy divergence.

S&P500 futures are showing nominal losses in Asia after an extremely bullish settlement on Thursday. US equities remained the talk of the town as investors got clarity on where interest rates by the Federal Reserve (Fed) would peak. Also, wider-than-expected United States weekly jobless claims conveyed that labor market conditions are further easing.

The US Dollar Index (DXY) is consistently defending further downside below 102.00. Bearish bets for the USD Index are extremely solid as easing labor market conditions might force the Fed to skip policy further. On Thursday, the Department of Labor showed that initial jobless claims for the week ending June 09 have remained steady at 262K. The street was expecting a decline to 249K. This was the fourth consecutive higher-than-anticipated weekly jobless claims.

On the Eurozone front, the European Central Bank (ECB) hiked interest rates by 25 basis points (bps) to 4% to tame inflationary pressures, which are above 6.1%. ECB President Christine Lagarde decided not to take the bullet and raise interest rates further despite a technical recession in the German economy.

For further guidance, economists at Nordea cited July hike could end up being the last one of the cycle, but risks are clearly tilted toward the hiking cycle continuing after the summer.