EUR/USD hovers around 1.0750 with a negative sentiment amid hawkish Fed

• EUR/USD could lose ground due to hawkish sentiment surrounding the Fed’s policy stance.
• Fed officials indicated the likelihood of the Fed maintaining the higher rates for a longer period.
• ECB may begin reducing borrowing costs as early as June.

EUR/USD could extend its losses for the third successive session, trading around 1.0750 during the Asian session on Thursday. The US Dollar (USD) appreciates amid expectations of the Federal Reserve’s (Fed) maintaining higher interest rates. Additionally, the higher US Treasury yields support for the US Dollar (USD), undermining the EUR/USD pair.

Furthermore, hawkish commentary from Federal Reserve officials has bolstered the US Dollar. According to a Reuters report, Federal Reserve Bank of Boston President Susan Collins stated on Wednesday the necessity for a period of moderation in the US economy to attain the central bank’s 2% inflation target. On Tuesday, Minneapolis Fed President Neel Kashkari mentioned that the prevailing expectation is for rates to remain unchanged for a significant period. While the probability of rate hikes is minimal, it is not entirely discounted.

On the Euro front, monthly Retail Sales surged by 0.8% in March, bouncing back from the upwardly revised 0.3% decline in February. This marked the most significant increase in retail activity since September 2022, suggesting strength in the European consumer sector. Furthermore, Retail Sales (YoY) rose by 0.7% compared to the revised 0.5% drop in February, indicating the first growth in retail since September 2022 and signaling a positive shift in consumer spending trends.

However, the European Central Bank (ECB) is anticipated to initiate a reduction in borrowing costs starting in June. Chief Economist Philip Lane of the ECB, as reported by the Business Standard, stated that recent data have reinforced his belief that inflation is gradually approaching the 2% target.