- EUR/USD finds a temporary support near 1.0650 though dismal market sentiment keeps the downside bias intact.
- Uncertainty ahead of the Fed’s policy has dampened the appeal of risk-sensitive assets.
- The ECB is widely anticipated to begin reducing interest rates from June.
During Wednesday’s European trading session, the EUR/USD currency pair found temporary support at 1.0650. However, the outlook for this major currency pair remains bearish as the market anticipates the upcoming monetary policy announcement from the Federal Reserve (Fed) at 18:00 GMT.
Market participants expect the Fed to maintain interest rates within the 5.25%-5.50% range, as current inflation levels significantly exceed the target rate of 2%. There are concerns that any premature rate cuts could reignite inflationary pressures.
The Fed is likely to continue its tight monetary policy stance in response to a series of higher-than-expected inflation figures from the first quarter. The Q1 Employment Cost Index, which was released on Tuesday, exceeded expectations, rising by 1.2% compared to the forecasted 1.0% and a previous figure of 0.9%. This has intensified concerns about persistent inflation.
Market sentiment remains very cautious ahead of the Fed’s meeting. This caution is reflected in the significant losses seen in S&P 500 futures during the London session, indicating a decrease in risk appetite among investors. Meanwhile, the 10-year US Treasury yields have increased to 4.69%, fueled by expectations of a hawkish stance from the Fed. The US Dollar Index (DXY), which measures the USD against a basket of six major currencies, has risen to 106.35.
On the European front, the long-term outlook for the Euro appears weak as investors anticipate the European Central Bank (ECB) beginning to lower interest rates starting from their June meeting. ECB policymaker Pablo Hernandez de Cos recently suggested that the ECB could start reducing rates from June, provided inflation continues its gradual decline. De Cos emphasized that the ECB should avoid committing to a specific rate path and instead adopt a data-dependent approach to policy decisions.
EUR/USD
