The EUR/USD pair has found temporary support near 1.0650 amidst a gloomy market sentiment, keeping a downside bias in place. Market uncertainty prevails ahead of the Federal Reserve’s policy announcement, dampening the appeal of risk-sensitive assets.
The European Central Bank (ECB) is expected to start reducing interest rates from June, adding further pressure on the Euro’s long-term outlook. ECB policymaker Pablo Hernandez de Cos has indicated support for interest rate cuts if inflation continues to decline gradually.
Investors are cautious as the Fed is anticipated to maintain interest rates steady in the 5.25%-5.50% range due to higher inflationary pressures. The Q1 Employment Cost Index released on Tuesday showed stronger-than-expected readings, deepening fears of persistent inflation.
Market sentiment remains cautious ahead of the Fed’s policy meeting, with S&P 500 futures posting losses and 10-year US Treasury yields rising to 4.69% on expectations of a hawkish guidance. The US Dollar Index (DXY) has also strengthened, reaching 106.35 against six major currencies.