EUR/USD bounces on profit-taking

EUR/USD continues Monday’s half-hearted bounce, probably on the back of profit taking after last week’s USD surge rather than specific fundamental drivers. 

Although US New Home Sales data out on Monday showed a slight decline of 0.3% from the previous month, the overall economic picture continues to indicate the US economy is ticking over exceptionally well and inflation remains elevated. 

This in turn suggests that the Federal Reserve (Fed) will not need not be too hasty in cutting interest rates, a key FX driver. Interest rates remaining higher for longer is positive for the Greenback as it attracts greater inflows of foreign capital. 

On Monday, commentary from Fed speakers was overall hawkish, advocating for a delay in cutting interest rates. 

The President of the Federal Reserve Bank of Atlanta, Raphael Bostic, said he only believed the Fed would cut once in 2024, as opposed to the official line which continues to be for three cuts. 

Federal Reserve Governor Lisa Cook was cautious, arguing that the Fed needed to take a “careful approach” to easing over time to “ensure inflation returns sustainably to 2.0%.” 

Their comments were probably responsible for the slight recovery in some USD pairs during Monday’s US session. 

On Tuesday, US Durable Goods Orders for February will provide further intelligence on the US economy which could impact the pair. 

The headline figure is expected to show a 1.3% rise in February following the 6.2% decline in January. A dramatic change from the expected could move EUR/USD, with a higher-than-forecast figure pushing the pair down and vice versa for a lower number.