Ella 
The EUR/USD is trading around the 1.0575 level in early Asian trading on Wednesday, after retreating from the 1.0600 level. Risk appetite and capital flows are dominating the market, dragging the US Dollar (USD) lower. Meanwhile, the U.S. Dollar Index (DXY) fell to 106.20 and U.S. Treasury yields surged, with the 10-year Treasury yield hitting 4.83%.
On Tuesday, the EU’s ZEW economic sentiment index fell to 2.3 in October from 8.9 the previous month, beating market expectations. Germany’s ZEW economic sentiment index also improved to -1.1 from -11.4.
ECB President Christine Lagarde said the European Central Bank is mindful of inflation risks from energy prices and the Israel-Hamas conflict. Meanwhile, ECB Chief Economist Philip Lane said the ECB will keep interest rates high until inflation returns to 2%, but this may take longer than expected due to a variety of factors.
Economic data from the U.S. Census Bureau showed that retail sales rose 0.7% on the month in September, beating expectations for a 0.3% gain. Retail sales rose 0.6% month-over-month compared to 0.2% in the previous month. The data shows that US consumption is strong. Elsewhere, U.S. industrial production rose 0.3% on the month, stronger than expected. Capacity utilization rose to 79.7, better than expected.
The dollar rallied on the upbeat U.S. data, but the impact was short-lived. However, rising U.S. bond yields may limit the dollar’s downside.
On Tuesday, Minneapolis Federal Reserve President Neel Kashkari said that inflation has persisted much longer than expected and remains too high. Earlier in the day, Chicago Fed President Austan Goolsbee and Philadelphia Fed President Patrick Harker maintained a dovish stance. Harker said the central bank should not put new pressure on the economy by raising borrowing costs. Traders will be looking for more clues from Federal Reserve officials.
