EUR/USD declines as Trump’s tax cut bill seems inflationary for economy.

EUR/USD faces pressure above 1.0500 as the US Dollar gains amid a strong recovery in US bond yields.
Republicans-controlled House of Representatives passed a $4.5 trillion tax cut plan on Tuesday.
Investors await the preliminary German HICP for February and the US PCE inflation data for January, scheduled for Friday.

EUR/USD continues to face selling pressure above the psychological level of 1.0500 in Wednesday’s North American session. The major currency pair falls due to a strong recovery in the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, recovers sharply to near 106.50 after a weak opening around the 11-week low of 106.10 earlier in the day.

Meanwhile, the shared currency ticks higher against other peers as investors shift focus to the European Central Bank’s (ECB) policy meeting, which will be held next week. The ECB is almost certain to cut the Deposit Facility rate by 25 basis points (bps) to 2.5%. Therefore, investors will pay close attention to the ECB’s monetary policy guidance. A slew of ECB officials has been guiding that the central bank should continue reducing interest rates based on expectations that inflation will sustainably return to the 2% target.

Soft Eurozone Q4 Negotiated Wage Rate data, a key measure of wage growth, has also boosted ECB dovish bets. On Tuesday, the ECB reported that the wage growth measure rose at a slower pace of 4.12% compared to the 5.43% increase seen in the third quarter of the previous year.

However, ECB board member Isabel Schnabel seems to criticize dovish bets as she believes that Eurozone’s economic weakness is “not due to overly high borrowing costs” but to “structural factors”. Her commentary indicated that she doesn’t support further policy easing. “It’s no longer clear the current 2.75% rate is still holding back the eurozone economy,” Schnabel said.

Going forward, investors will focus on the German flash Harmonized Index of Consumer Prices (HICP) data for February, which will be published on Friday.