Ella 
During the Asian session on Friday, EUR/USD traded higher and now appears to have snapped a five-day losing streak, dropping to around 1.0855, a six-week low hit the previous day. However, the rally lacked momentum, with EUR/USD now trading around 1.0885-1.0890, up 0.15% on the day.
The U.S. dollar (USD) remained on the defensive for two consecutive days after U.S. bond yields fell, becoming a key factor boosting the euro/dollar. That said, the benchmark 10-year U.S. Treasury yield rose to a 10-month high on Thursday as more investors see the Federal Reserve (Fed) set to keep interest rates higher for longer. A “tailwind” for the dollar.
The outlook for further Fed tightening was reaffirmed by the latest U.S. consumer price index report, which showed a modest increase in consumer prices in July. Also, U.S. producer prices rose slightly more than expected last month, suggesting that the battle to bring inflation back to the Fed’s 2% target is far from won. In addition, the minutes of the Federal Reserve meeting on July 25-26 showed that policymakers continued to make tackling inflation a priority.
Meanwhile, upcoming U.S. macro data continues to point to a remarkably resilient U.S. economy, which should keep the Federal Reserve in its hawkish stance, renewing fears of headwinds from rapidly rising borrowing costs. Coupled with the deteriorating economic situation in China, the market has exacerbated concerns about an economic recession and weakened investors’ appetite for high-risk assets. This risk-on liquidity could further favor the safe-haven dollar relative to the euro.
Aside from this, speculation that the European Central Bank (ECB) will halt its nine-match interest rate hike streak in September could cap further gains in EUR/USD. As such, it would be prudent to wait for strong follow-through buying to emerge before confirming that the decline of the past month-plus is over and poised for further gains. Market participants will now focus on speeches by ECB board member Philip Lane.
European Central Bank Governor Philip Lane’s speech and the release of the final consumer price index in the euro zone may have an impact on the euro and provide some momentum for the euro/dollar. Meanwhile, the dollar will be influenced by U.S. bond yields as there are no major U.S. data releases on Friday. Beyond that, broader risk sentiment in the market will drive demand for the safe-haven dollar and provide some impetus to EUR/USD. However, EUR/USD is still on track for a fifth straight week of losses.
