EUR/USD stages a recovery near 1.0760 amid upbeat US Dollar

• EUR/USD rebounded from its three-week low at 1.0723.
• ECB is expected to keep the Main Refinancing Operations Rate unchanged at 4.5% in its upcoming meeting.
• Fed may maintain interest rates at 5.5% during the policy meeting on Wednesday.
• Solid US labor data triggered the discussion on the duration of tightened monetary policy by the Fed.

The EUR/USD rebounds from its three-week low at 1.0723, which was recorded on Friday. The EUR/USD pair trades higher around 1.0760 during the Asian trading hours on Monday. However, the US Dollar (USD) received an upward momentum after the release of stronger economic data from the United States (US).

The US Nonfarm Payrolls for November exceeded expectations with a significant increase to 199,000, while the US Unemployment Rate dropped to 3.7% from the previous 3.9%. Meanwhile, the German Harmonized Index of Consumer Prices (YoY) remained steady at 2.3% in November, in line with expectations, with monthly figures reflecting a 0.7% decline, similar to October.

Market anticipation suggests that the European Central Bank (ECB) will maintain the Main Refinancing Operations Rate at 4.5% in its upcoming monetary policy statement on Thursday. Furthermore, expectations point toward a commencement of interest rate cuts by the ECB in March 2024.

On the other hand, speculation surrounds the future trajectory of the US Federal Reserve’s (Fed) interest rates and the duration for which policy rates will remain restrictive. However, the consensus expectation is that the Fed will keep interest rates at 5.5% during the upcoming monetary policy meeting on Wednesday.

The US Dollar Index (DXY) remains strong above 104.00, supported by positive US Treasury yields. At present, the yields on 2-year and 10-year US bond coupons stand at 4.24% and 4.73%, respectively.

Investors are expected to closely monitor the US Consumer Price Index (CPI) data on Tuesday for potential market impact. Additionally, the ZEW Survey – Economic Sentiment for December will be released by Germany, adding to the market’s focus.