EUR/USD Extends Losses After Fed’s Hawkish Comments

In early Asian trading on Friday, EUR/USD continued its decline to around 1.0640 after retracing its one-week high of 1.0690. Hawkish comments from Federal Reserve officials provided some support to the U.S. dollar (USD). Later in the day, Chicago Fed President Ostein Goolsby will speak.

On Thursday, data released by the U.S. Department of Labor showed that in the week ended April 13, the number of new U.S. citizens applying for unemployment benefits increased by 212,000 from the previous week (revised value of 211,000), lower than the expected 215,000 people. The report showed the labor market remains resilient, and investors expect the U.S. Federal Reserve (FED) may delay a rate cut until September.

Federal Reserve Chairman Jerome Powell said on Tuesday that as inflation continued to rise unexpectedly in the first three months of this year, monetary policy will need to maintain a restrictive bias for longer. Atlanta Fed President Raphael Bostic said Thursday that he expects U.S. inflation to return to the 2% target at a slower pace than many expect. Bostic added that he was willing to be patient and that a rate cut could come before the end of the year. Meanwhile, New York Fed President John Williams said he doesn’t feel the urgency to cut interest rates and that monetary policy is currently in good shape. Strong U.S. economic data and U.S. interest rate policy that “maintains higher interest rates for a longer period of time” continue to boost the dollar and become a factor that “suppresses” EUR/USD.

In Europe, the European Central Bank signaled that it may start cutting interest rates in June. European Central Bank Vice President Luis de Guindos said on Thursday that the European Central Bank would be ready to reduce restrictions on its monetary policy stance if economic data develops in line with expectations. ECB policymaker François Villeroy de Galhau stressed that the ECB should cut interest rates in June to avoid interest rate policy lagging behind the inflation curve.

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