The EUR/USD is currently facing resistance at 1.0880 during the early European session. The US Dollar Index (DXY) is gaining momentum for a potential reversal after experiencing a slight correction.
The market sentiment is becoming risk-averse as investors are trimming positions in risk-sensitive assets, and S&P500 futures witnessed selling pressure during the early Asia session.
The investors are worried that the delay in the US debt-ceiling talks may lead to fears of default, adding to the concerns of the US Treasury’s augmented obligated payments.
The demand for US government bonds has risen, and the 10-year US Treasury yields have dropped below 3.49%. The market expects the Federal Reserve to keep the interest rate policy unchanged due to consistently softening inflation, a sharp slowdown in the US Producer Price Index (PPI), and easing labor market conditions.
However, Federal Reserve policymakers have mixed views on interest rate guidance.
Investors are awaiting the US debt-ceiling talks and are underpinning the risk-aversion theme to avoid uncertainties associated with US borrowing cap negotiations.
US President Joe Biden is expected to approve a higher borrowing cap for the US Treasury without surrendering the budget for spending initiatives, while House of Representatives Joseph McCarthy would try to reduce spending to avoid expanding the budget deficit.
The release of the preliminary Eurozone Gross Domestic Product (GDP) data is expected to shed light on the Eurozone’s economic strength. The European Central Bank (ECB) policymakers have been consistently betting on the Eurozone’s economic resilience.
The pace of GDP growth is estimated to remain unchanged on a quarterly and an annual basis at 0.1% and 1.3%, respectively.
The street is uncertain about the European Central Bank’s interest rate guidance, as the central banks seem far from the interest rate peak.
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