• EUR/USD edges lower on Wednesday and is pressured by a modest USD uptick.
• Elevated US bond yields and a softer risk tone benefit the safe-haven Greenback.
• Any meaningful downfall seems elusive ahead of the key central bank event risks.

The EUR/USD pair comes under some selling pressure on Wednesday and moves further from over a three-week peak, around the 1.0825 region touched the previous day. Spot prices remain on the defensive heading into the European session and currently trade around the 1.0780-1.0775 area, down nearly 0.15% for the day.

A generally softer tone around the US equity futures drives some haven flows towards the US Dollar (USD), which, in turn, is seen as a key factor dragging the EUR/USD pair lower. Any meaningful USD recovery, from its lowest level since May 17 set on Tuesday, still seems elusive in the wake of firming expectations that the Federal Reserve (Fed) will skip hiking interest rates at the end of a two-day policy meeting later today.

The market bets for an imminent pause in the Fed's year-long policy tightening cycle were reaffirmed by softer US consumer inflation figures on Tuesday. In fact, the headline CPI merely rose in May and the annual rate decelerated to the slowest pace since March 2021. That said, the year-on-year inflation rate, at 4.0%, is still twice the Fed's 2% target and kept hopes alive for additional 25 bps lift-off at the July FOMC meeting.

This, in turn, remains supportive of elevated US Treasury bond yields, which, along with some repositioning trade ahead of the key central bank event risk, is seen lending some support to the Greenback. That said, the recent hawkish comments by a slew of influential European Central Bank (ECB) officials suggest that there is still a way to go to raise borrowing costs despite a fall in the headline Eurozone CPI to 6.1% in May.

It is worth recalling that ECB President Christine Lagarde indicated last week that additional interest rate rises were likely as, so far, there was no clear evidence that underlying inflation has peaked. This could underpin the shared currency and lend support to the EUR/USD pair. Traders might also prefer to wait on the sidelines ahead of the key central bank event risks - the FOMC decision on Wednesday and the ECB meeting on Thursday.

Technical levels to watch