EUR/USD Holds Near 1.1030

EUR/USD hovered around 1.1030 in Asia on Tuesday, retreating from the recent high of 1.1139 hit last Thursday. In 2023, EUR/USD closed at 1.1036, up 3.16%, after two consecutive years of losses. EUR/USD has found upward support in the previous three months as US inflation levels eased slightly.

The U.S. dollar index is trading around 101.40 after rising in recent sessions. However, the U.S. dollar index faces challenges as markets bet on a dovish Fed stance on the trajectory of interest rates into early 2024.

On Friday, the Chicago Purchasing Managers Index released by the International Society of Purchasing Managers-Chicago (ISM-Chicago) showed that the business conditions indicator for Illinois, Indiana and Michigan fell to 46.9 in December from the previous 55.8.

Market participants have witnessed recent weakness in U.S. labor data, core PCE inflation, and annualized GDP. These data confirm the theory that the U.S. economy is retreating in the fourth quarter and is about to have a soft landing. This strengthens the case for the Fed to cut interest rates in 2024 and adds to bearish pressure on the dollar.

Eurozone consumer inflation fell in November, but full-year inflation remains above the 2.0% target. In contrast, December PMI reports showed a slowdown in both services and manufacturing. Spanish consumer prices held at an annual rate of 3.3%, indicating continued inflation in some European countries. This may strengthen the hawkish stance of the European Central Bank and provide a solid basis for support for the euro.

Traders are awaiting further data from the euro zone, including the Harmonized Consumer Price Index due on Friday, for fresh impetus. In the United States, the ISM Manufacturing Purchasing Managers Index and Federal Reserve meeting minutes will be released on Wednesday.

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