EUR/USD continues to gain near 1.0610, focus on German, US data

• EUR/USD extends gains due to weaker US Dollar.
• ECB is expected to pause its interest rate tightening cycle.
• Greenback weakens on a slew of dovish remarks by Fed officials.

EUR/USD attempts to extend its gains on the second day, trading in the positive zone near 1.0610 during the early Asian session on Wednesday. The pair is receiving upward support due to the continued correction in the US Dollar (USD) on the dovish remarks by Federal Reserve (Fed) officials.

A wave of dovish-leaning comments from Fed’s policymakers has resonated in the markets, with several expressing concerns that elevated long-term US bond yields could impede their inclination to raise rates in the forthcoming meetings.

Atlanta’s Fed President Raphael Bostic went on record stating that the current monetary policy is already restrictive, rendering additional rate hikes unnecessary, following the dovish trajectory established by two fellow Fed colleagues on Monday, Minneapolis Fed President Neel Kashkari echoed a similar sentiment on Tuesday.

The US Dollar Index (DXY) loses its ground and trades lower around 105.70, by the press time to extend losses that began during the previous week. The US Dollar (USD) faced challenges despite a minor recovery in US Treasury yields on Tuesday. However, the 10-year US Treasury bond yield stands lower at 4.64% at the current press time.

Investors will closely watch economic data, particularly focusing on inflation figures. The Producer Price Index (PPI) is scheduled for Wednesday, followed by the release of the FOMC meeting minutes and the Consumer Price Index (CPI) on Thursday.

On the other side, the uptick in German bond yields could limit the advancement of the EUR/USD pair, as market participants anticipate the European Central Bank (ECB) to pause its tightening cycle.

On Tuesday, Francois Villeroy de Galhau, a member of the European Central Bank (ECB) Governing Council and President of the Bank of France, expressed the view that “at this stage, further rate hikes are not the right course of action.”

In an interview with the French paper La Tribune Dimanche, ECB President Christine Lagarde remarked, “The key ECB interest rates have reached levels that, if maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.”

President Lagarde is optimistic about meeting the target of bringing inflation back down to 2%. Additionally, she expressed confidence in Europe’s gas reserves situation.

Projections suggest a slowdown in Germany’s inflation, potentially strengthening the notion that the ECB will keep interest rates unchanged.