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EUR/USD approaches 1-mth highs amid USD weakness

Today's trading could be less volatile as market players might stay on the sidelines ahead of tomorrow's Fed decision.

The anti-USD mood persisted in Tuesday’s markets, pushing the EUR/USD pair higher again as the euro slowly creeps toward the 1.08 level.

Important macro updates are due

The European economic agenda will include the ZEW Survey for Germany and the Eurozone. Later in the day, existing home sales from the United States are expected to provide additional impetus for the financial markets.

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Focus is now on this week’s Federal Reserve meeting, with the two-day gathering beginning later this session. As a result of the turbulence in the banking industry, it is unknown if the US central bank will continue to raise interest rates to combat high inflation. However, the market expects the Fed to raise interest rates by 25 basis points.

“Volatility in rates and the broader asset markets has been extraordinary recently,” said John Velis, FX and macro strategist for the Americas at BNY Mellon.

This has complicated the outlook for the (Fed) meeting in March and beyond. As a result, there has been a significant revision of future rate expectations. For example, a few weeks ago, the terminal rate was expected at 5.5%, compared to the current forecast of 4.8%.

ECB speakers hit the wires

Christine Lagarde, president of the European Central Bank (ECB), testified before the European Parliament’s Committee on Economic and Monetary Affairs that inflation is expected to continue too high for too long, as reported by Reuters.

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Lagarde reaffirmed that wage pressures have intensified as a result of strong labor markets and said that workers are attempting to regain some of their spending power. Nevertheless, she stated, “the key ECB interest rates remain our major tool for determining the monetary policy stance.”

Furthermore, Pablo Hernandez de Cos, a policymaker at the European Central Bank (ECB) and president of the Spanish central bank, stated on Tuesday that “market expectations of a 3.25 percent rate peak cannot be confirmed.”

Lastly, Reuters reported that European Central Bank (ECB) policymaker Robert Holzmann toned down his prior recommendation for three further 50-basis-point rises in interest rates.

Protests in France

The French National Assembly rejected a motion of no confidence against President Emmanuel Macron’s cabinet by only nine votes. The proposal required 287 votes to pass but received 278.

The bill to raise the retirement age from 62 to 64 has been met with significant criticism from the administration of Macron. Prime Minister Elisabeth Borne utilized a constitutional provision to drive the law through the Parliament without a vote, resulting in widespread protests. The defeat of the vote of no confidence was not unexpected, although the margin of victory was less than anticipated.

The next target for bulls is expected at 1.0790/1.08, and if the euro breaches that level, it could accelerate further higher to this year’s highs at 1.10.

EUR/USD daily chart

EUR/USD daily chart, source: author´s analysis, tradingview.com

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