Should the Fed’s tone come in less hawkish than expected, the euro may see a more robust ascent
US stock markets bounced after a three-day slide on Tuesday while Treasury 10-year yields dropped from the highest level since 2019. Investor sentiment improved as inflation worries ebbed and oil prices kept plunging. Also, New York manufacturing data came in much weaker than expected, easing worries about more aggressive Fed tightening. The S&P 500 rose 2.1%, the Dow Jones Industrial Average gained 1.8% and the Nasdaq rallied 2.9%.
Today in Asia, equities were mostly higher, with Chinese shares bouncing strongly after a sell-off. Shanghai Composite rose nearly 3.5% as COVID-19 cases today came in just above 3,000 versus 5,000 yesterday. Hong Kong’s Hang Seng rallied over 9% in a spectacular recovery from the latest plunge. In Japan, the Nikkei 225 gained 1.64% after fresh data showed that exports grew 19.1% year-on-year and imports rose 34% year-on-year in February.
Meanwhile, the dollar stays under some selling pressure versus most counterparts ahead of the outcome of the Federal Reserve meeting due later today. The central bank is widely expected to hike its policy rate by 25 basis points. Market participants will pay close attention to Powell’s comments on the policy outlook and the updates summary of economic projections. Should the Fed refrain from a more hawkish tone, citing uncertainty surrounding geopolitical developments, the greenback will come under more intense downside pressure in the near term.
EURUSD keeps recovering from the 1.0900 support that capped the sell-off at the start of the week. Still, the euro struggles to regain the 1.1000 figure, lacking the upside momentum despite dollar weakness. Should the Fed’s tone come in less hawkish than expected, the pair may see a more robust ascent in a knee-jerk reaction to the event. However, the overall bearish trend remains intact as long as the prices stay below the 200-week SMA that arrives marginally below the 1.1500.