EUR/USD bounces off yearly lows ahead of US/ EU PMI, USD rebounds

• EUR/USD trades cautiously after falling for the four consecutive sessions on Friday. 
• The US Dollar Index recovers initial losses and trades above 94.30.
• Hawkish Fed’s official, rising inflation concerns, downbeat economic data jolts down as discussion points.

The EUR/USD continues with its downside momentum since the beginning of the week in the Asian session on Friday. The rebound in the US dollar pushes EUR/USD to confide in a narrow trade band in less than10-pips movement. At the time of writing, EUR/USD is trading at 1.1576, down 0.08% for the day.

The US Dollar Index (DXY), which tracks the performance of the greenback against the six majors, manages to rebound from the early lower levels and stands strong above 94.30, which keeps EUR/USD performance in check.

Investors digested the growing expectations for a tapering of Federal Reserve stimulus that could begin as soon as November and a possible interest rate hike in late 2022. In addition to that, the US House Speaker Nancy Pelosi said that the legislation would keep servies functioning, prevent furloughs for hundreds of thousands of workers and protect the economy. The House will cast a vote on Friday for the $1.2 billion infrastructure bill. This, in tune, increases demand for the greenback.

Earlier, the mixed economic data pulled the greenback a bit lower in the US session. The Initial Jobless Claims unexpectedly rose for a third straight period to 362K against the market expectations of a decline to 335K whereas the US Gross Domestic Product (GDP)  advanced 6.7% in Q2, slightly above the market consensus of 6.6%.

On the other hand, the shared currency remained depressed amid divergence between the  ECB and the US Fed's  stance on tapering and optimistic economic data. ECB President Christine Lagarde considers inflation issues as transitory and opt for the dovish monetary policy stance. On the economic data front, the eurozone Jobless rate hit a 15-month low at 7.5% in August.

In addition to that, the eurozone Finance Ministers will discuss soaring energy prices on Monday about the concerns of slowing economic recovery, higher inflation prospects, and impact on investment decisions.

As for now, traders are waiting for the German Retail Sales data, the Eurozone Inflation Rate, Markit Manufacturing Purchasing Managers Index (PMI), US Personal Spending and Income data, PCE Price index, and ISM Manufacturing PMI to gauge market sentiment.

EUR/USD additional levels