• Euro (EUR) under pressure on stronger USD
  • EZ GDP & German sentiment data beat forecasts
  • US Dollar (USD) traces Treasury yields higher
  • US retail sales & FOMC minutes in focus

The Euro US Dollar (EUR/USD) exchange rate is extending losses for a second straight day. The pair settled -0.2% lower on Tuesday at US$1.2104 towards the low of the day, after reaching a 3 week high of US$1.2170 earlier in the session. At 09:15 UTC, EUR/USD trades -0.3% at US$1.2070, its lowest level in a week.

The Euro is being pressurized by the stronger US Dollar as surging US Treasury yields lifts the greenback.

The US bond market is pricing in a rapid economic recovery and a possible acceleration in inflation amid growing expectations of a strong vaccine led economic rebound, combined with huge US fiscal stimulus. US treasury yields jumped to the highest level since February 2020.

Today is a busy day for the US Dollar with investors looking to the release of US retail sales and the minutes from the January FOMC.

Investors will be scrutinising the minutes for further clues as to the next steps that the US central bank could take. On the one hand the US bond market is increasingly pricing in the Fed tapering support. On the other hand, Federal Reserve Chair Jerome Powell pushed back on the prospect of withdrawing support at the press conference.

Meanwhile US retail sales are expected to rebound 1% in January, after declining -0.7% month on month in December. A strong reading could raise doubts over the Fed’s decision to refrain from tapering.

The Euro trades on the back foot despite upbeat data on Tuesday.

Eurozone fourth quarter GDP was slightly better than initially estimated. The second reading of the GDP showed that the economy contracted by -0.6% quarter on quarter in the final three months of the year. This was a marginal improvement on the -0.7% decline initially reported.

ZEW German economic sentiment for February also unexpectedly spiked higher to 71.2, up from 61.8 in January. This was well ahead of the 59.5 figure that analysts expected. The figures show that that confidence is growing that the German economy will bounce back to growth.

There is no high impacting Eurozone data due so the Euro is likely to be driven by sentiment and the US Dollar.