EUR/USD skids firmly below 1.0700 amid upbeat USD Index, US NFP and Eurozone Inflation eyed

• EUR/USD has shown a sheer downside below 1.0700 as US Dollar bulls got strength amid hawkish Fed bets.
• Soaring expectations for one more interest rate hike by the Fed might rerate the USD Index ahead.
• The ECB is expected to remain hawkish in June as inflation is extremely diverged from the desired target of 2%.

The EUR/USD pair has delivered a vertical fall and has slipped below the round-level support of 1.0700 in the Asian session. The major currency pair has witnessed immense selling pressure as the US Dollar Index (DXY) has shown a firmer upside after overstepping the crucial resistance of 104.20.

S&P500 futures have posted decent losses in Asia after a rangebound Tuesday, portraying a risk-aversion theme. Investors are dumping risk-sensitive assets amid fresh expectations of an interest rate hike by the Federal Reserve (Fed). The appeal for the USD Index has improved sharply as investors are anticipating a rerating of the dollar basket amid hawkish Fed bets.

However, the demand for US government bonds is consistently increasing as investors are optimistic that the US borrowing cap increase proposal will get passage by Congress before June 05. This has led to a decline in the 10-year US Treasury yields below 3.69%.

Consumer spending that remained resilient in April derailed expectations of a neutral interest rate policy stance by the Fed despite Fed chair Jerome Powell cited that more rate hikes are less appropriate due to tight credit conditions. For now, the focus is shifting toward the United States Nonfarm Payrolls (NFP) data, which will release on Friday.

On the Eurozone front, investors are awaiting the release of preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data, which is scheduled for Thursday. According to the estimates, core monthly HICP is seen expanding by 0.8% at a slower pace than the 1% recorded for April. Annual core HICP is expected to soften marginally to 5.5% vs. the prior release of 5.6%. The headline HICP is seen decelerating sharply to 6.3% against the former release of 7.0%.

However, the European Central Bank (ECB) is expected to remain hawkish in June as inflationary pressures are extremely diverged from the desired target of 2%. Apart from the Eurozone inflation, the speech from ECB President Christine Lagarde will also remain in focus.