- EUR/USD refreshes daily high in the Asian session.
- US Treasury yields undermine the demand for the US dollar.
- Risk aversion on waning inflationary fear also weighs on the USD.
The selling tone surrounding the US dollar, amid falling US Treasury yields, keeps EUR/USD on the verge of daily gains. The pair remained on the defensive near the 1.2230 level for the past five trading sessions.
At the time of writing, the EUR/USD is trading at 1.2226, up 0.09% on the day.
The successive gains in EUR/USD is primarily credited to the downbeat performance of the US dollar. The US Dollar Index (DXY), which tracks the performance of the greenback against the six majors, remained on the backfoot amid weaker US Treasury yields. The tug of war between growth and inflationary concerns took a toll on the dollar. The Fed reaffirmed tapering measures are not on cards despite the strong economic performance.
In addition to that, the divergence in Fed official’s comments about the timing of the ending of the QE measures and rolling back of the current ultra-easy monetary policy also keep investors away from the US dollar.
Having said that, the stronger economic data in the US, Eurozone, and UK improved the risk appetite and drove market participants towards riskier assets. The risk on market sentiment favors EUR/USD's upside gains.
On the other hand, the single currency is boosted by the upbeat PMI data released on Friday. The IHS Markit Flash Eurozone Manufacturing PMI rose to 62.8 in May, above the market expectations at 62.9. The Service PMI jumped to 55.5 in May, beating the market forecast of 52.3.
Meanwhile, European Central Bank (ECB) President Christine Lagarde shrugged off the expectation of winding up the bond purchasing program. Eurozone Finance Minister Paschal Donohoe remained optimistic about the economic recovery but showed concerns about the challenges and not to fall behind China and the US. The comments hold back some of the gains for the EUR/USD pair.
As for now, the major theme remains the rising price pressures, which could alter the Fed’s current monetary policy and, in turn, the rise of the US dollar owing to the higher interest rate expectations.
The important data on the economic calendar to look out for would be the German IFO Business Climate for May. The US economic data consist of S&P/Case-Shiller Home Price, CB Consumer Confidence, and New Home Sales data.
