Title: EUR/USD drops back to parity as DXY bulls cheer risk-aversion, hawkish Fed bets

September 01, 2022 01:35 AM ET

By: AnalysisWatch

The EUR/USD bears are approaching the psychological magnet of 1.0000, also known as the parity level, as traders flock to the U.S. dollar in search of risk safety. The bearish bias is also being supported by the aggressiveness of U.S. Federal Reserve policymakers towards interest rate hikes, despite recent mixed data. As such, the major currency pair is posting its first negative daily results in four days ahead of Thursday's Asian session.

The U.S. dollar index (DXY) posted the largest daily gains in more than a week, while recovering from bids near 109.10 at the latest. In doing so, the greenback's indicator against the six major currencies appears to be ignoring the ADP employment reading in the U.S., which rose by 132,000 versus 288,000 expected and 270,000 previously. The reason for this could be related to August's average wage increase, which rose 7.6% year-over-year, keeping policymakers optimistic.

Following the data, Cleveland Federal Reserve President Loretta Mester said on Tuesday that she does not expect the Fed to cut rates next year, as Reuters reports. In addition, newly appointed Dallas Fed President Lory Logan joined the ranks of other hawkish U.S. central bankers by stating that "restoring price stability is the number one priority."

It is also worth noting that the CME FedWatch tool shows a 74.0% probability of a 75 basis point Fed rate hike in September, up from 73.0% the day before, strengthening the US dollar.

Yields on 10-year US Treasuries rose to a two-month high of around 3.21 percent, while coupons on two-year bonds rose to their highest levels since 2007, at nearly 3.20 percent and 3.50 percent, respectively, reflecting the mood. The intraday drop of 0.56% in S&P 500 futures to their lowest levels since late July, at 3,930 at press time, also reflects this negative sentiment.