EUR/USD rose on Friday but was confined to recent ranges below the daily cloud top, with potential downside risks growing as U.S. data and inflation possibly putting the Fed in a difficult situation.
April PMI nL1N2MG17D and March new home sales nL1N2MG0ZD results were well above elevated estimates.
The data helped reverse the earlier drop in U.S. 10-year yields US10YT=RR and the rally in December 2022 eurodollar prices EDZ2, both of which help to buoy the U.S. interest rate complex.
Inflation expectations are increasing especially among the U.S. corporate sector.
Procter & Gamble PG.N said prices for products will be hiked this fall nL4N2MD2V9 and Honeywell's HON.N CEO expects an inflationary environment this year nFWN2MG0QA.
Upbeat economic data along with rising rates and inflation could make it difficult for the Fed to defend its pledge to remain accommodative.
Should the Fed fail to convince investors that rates will remain low, dollar buying is likely and EUR/USD gains off the March monthly low could be eroded.
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