The most recent U.S Banking sector crisis has halted the Fed’s aims of increasing interest rates for an extended period.
Last week two of the U.S biggest banks SVB and Signature faced a regulatory crackdown, and as a result, the entire stock market crumbled.
This also had an adverse impact on the price of the U.S.D and EUR/USD pair price.
As a result of these outcomes, the EUR/USD differential movements have reached its two years lowest level.
As of this writing, it is expected that the EUR/USD will remain slightly higher than those levels. But the risk factor is surely holding the pair back.
The market is Expecting Tight Monetary Policy
Although the market is preparing to face tough monetary policies. But in terms of price, the money market so far has remained unable to cope with the 25 bps interest rate hike.
It is important to notice that the Fed’s current stance of a 25 bps interest rate is far from its previous claim of increasing the interest rate by 75 bps.
This change in the decision has been forced by the U.S. banking sector crisis. The restructuring in the interest rate hike came after the American authorities failed to propose any solid solution to the current banking sector.
At the present moment, the intense interest rate hike will damage the USD rather than give it momentum. At the press time, the U.S. regional banking index plummeted by 10%. This is what haunts the authorities.
Authorities do not want this to happen as a weaker banking sector will result in a weaker U.S. Dollar. The recent shift in Feds policy has narrowed the gap between Euro and USD prices.
It is important to know that the brisk movement in short-term interest rates has a significant impact on the value of currencies. The weaker dollar has sent the price of the EUR/USD pair to new lows.
A Pristine EUR/USD Surge in Terms of Price is On the Cards
Short-term moves in the favor of interest-rate do not offer any strength to the currencies. But this does not mean that there is no potential for the EUR/USD to go higher in the short term.
Experts are hopeful that soon EUR/USD pair will be moving in the higher range. The current plunge in the prices of currencies has nothing to do with currencies’ technical indicators.
The recent U-turn in Fed policy and the ongoing turmoil of the U.S. banking sector together have forced the currencies to plunge. For currencies to rise again, the upcoming Federal Reserve meeting scheduled for March 22 will be integral.
If Federal Reserves decided to go for the higher interest rate hike the USD will go higher. This will also give momentum to the EUR/USD price range.
The current market situation is not sustainable for the currencies. In case the Feds accommodated the market hopes this would give the market much-needed momentum.
That is why the EUR/USD can still go higher in terms of price. As far as the market sentiments are concerned, the market is still biased towards a further bullish trend for the EUR/USD pair.
Experts do believe that the current technical indicators show the presence of bulls in the market. As soon as Feds and U.S. banking sector issues would be resolved the market will bounce back.
The current market is tumultuous for investors. The environment is not suitable for investing in U.S. Dollar. It has been advised that investors need to wait for the Fed’s final say about the interest rate.
Once the Feds are clear about their future direction the situation for the money market will become much clearer.
On the flip side, the U.S. banking sector crisis might stay for a longer than expected period. Hence investors are confused about what to do next. Investors need to wait patiently before making any move.
