Ella 
In the Asian market on Tuesday, the EUR/USD recovered its intraday losses and was trading around 1.0590. EUR/USD continues to face challenges despite ECB President Christine Lagarde saying interest rates will remain within limits for longer.
However, Lagarde also pointed out that inflation is expected to remain “at too high a level for too long.” However, the European Central Bank is facing a difficult situation as it balances the need to deal with rising inflation while avoiding the negative impact on economic imbalances across the euro area. This delicate balance is likely to lead to downward pressure on EUR/USD.
The U.S. dollar index (DXY) holds steady around 106.00, close to recent highs from November. The U.S. dollar (USD) continues to strengthen, in part due to cautious market sentiment and rising U.S. Treasury yields.
The yield on the 10-year U.S. Treasury note has climbed to 4.55%, its highest level since October 2007.
The expectation that interest rates will remain high for a long time is based on the resilience of the U.S. economy. In addition, the Federal Reserve stated that it will further raise interest rates if necessary, thereby consolidating the strength of the US dollar.
U.S. President Joe Biden and a top adviser recently warned of the potential consequences of a federal government shutdown, adding to market concerns. They highlighted the broader hardships a shutdown could cause, including the loss of food benefits for nearly 7 million low-income women and children.
While President Biden and House Speaker Kevin McCarthy have previously reached an agreement on government spending levels, the Republican-controlled House of Representatives may try to pass deep budget cuts this week.
The proposed cuts would need approval from the Democratic-controlled Senate, which is expected to oppose them. If the House and Senate cannot reach an agreement, it could lead to a partial government shutdown next Sunday.
Investors are likely to focus on the release of key economic data, including the core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, and the euro zone’s harmonized index of core consumer prices (HICP), scheduled for release on Friday.
These economic data are expected to provide investors with important information on inflationary pressures in both economies and may influence EUR/USD trading decisions.
