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EUR/USD Accurately Depicts Pre-Fed Anxiety Below 1.0800, According To ECB's Lagarde
After four consecutive gains, the EUR/USD approaches a five-week peak. Fears of a banking crisis decline bolstered hawkish ECB discussions, which favored Euro investors. US Treasury Secretary Yellen is able to restore market sentiment, while conflicting EU/US data are largely ignored. A 0.25% Fed rate hike is almost certain, depending on how the FOMC responds to the banking crisis.
Following a four-day uptrend, EUR/USD fluctuates between 1.0760 and 1.0770 as bulls take a pause at the greatest levels in five weeks on the day of the Federal Reserve (Fed) decision. In doing so, the Euro-U.S. dollar exchange rate reflects the market's caution ahead of key catalysts, as well as traders' indecision in the wake of the recent uptick in sentiment and Treasury bond yields, not to mention hawkish central bank bias.
Global markets breathed a sigh of relief on Tuesday, following several days of risk aversion, as the market accepted US policymakers' efforts to contain the banking crisis.
Treasury Secretary Janet Yellen's remark that "Treasury, Fed, and FDIC actions reduced the risk of further bank failures that would have imposed losses on the deposit insurance fund" drew significant attention as one of the most significant developments. Earlier on Tuesday, Bloomberg reported that "US officials are examining ways to temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing it is necessary to avert a potential financial crisis."
Not only US policymakers, but also ECB policymaker Martins Kazaks and Switzerland's Banking Association Chairman, Dr. Marcel Rohner, attempted to persuade the markets that their respective banking systems are not on the verge of collapse.
Recently, the news that US policymakers are contemplating methods to circumvent the US Congress in order to defend the banks coincided with rumors that the First Republic Bank is seeking government assistance to encourage EUR/USD traders to purchase the currency pair.
It should be emphasized that contradictory data from Europe and the United States challenges pair traders at the outset of the most important day.
Tuesday, Germany's ZEW Economic Sentiment Index fell to 13.0 for March from 28.1 in February, compared to the market's anticipation of 16.4, while the Current Situation index came in at -46.5 for the month, compared to -45.1 previously and -45.8 analysts' predictions. Notable is that the ZEW Economic Sentiment Index for the Eurozone fell to 10.0 in March from 29.7 in previous measurements and market expectations of 23.2.
In contrast, US Existing Home Sales for February increased by 14.5%, compared to 0.0% expected and -0.7% previously. Nonetheless, the Philadelphia Fed Non-Manufacturing Business Outlook survey index fell to -12.8 in March, dampening subsequent US Dollar-linked optimism.
Elsewhere, despite Wall Street's optimistic close, S&P 500 Futures remain lackluster and benchmark US Treasury bond yields struggle to prolong a two-day rebound from the lowest levels since September 2022. As of press time, the yields on 10-year and 2-year US Treasury bonds oscillate around 3.60 percent and 4.18 percent, respectively.
Ahead of the crucial Federal Open Market Committee (FOMC) monetary policy meeting, the comments of ECB President Christine Lagarde could provide EUR/USD traders with entertainment.
Noting that the Fed's 0.25 basis point rate hike is almost certain, EUR/USD skeptics should watch for hawkish developments in the dot plot and remarks to delay banking turmoil in Fed Chair Jerome Powell's speech.
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