- EUR/USD remains weighed down by firmer US dollar and Treasury yields.
- The euro bears the brunt of the dovish ECB and a likely EU embargo on the Russian gas.
- Hawkish Fed’s commentary will likely keep USD bulls afloat alongside the Ukraine risks.
EUR/USD is consolidating the latest leg down just below 1.0800, as bears refuse to give up amid a notable US dollar demand and risk-off market profile.
The greenback continues to track the rally in the US Treasury yields, in the wake of the hawkish Fed commentary and increased odds of a 50-bps May rate hike. In the previous, the Fed policymakers hinted at the balance sheet reduction process to kick in as early as June while some of the officials called for the rates to return to neutral this year.
The yield differential between the US and Euro area widened remarkably and bolstered the dollar’s demand after the European Central Bank (ECB) disappointed the hawks. “In fact, the ECB left its key policy rates unchanged and reaffirmed that rate hikes would only come sometime after the Asset Purchase Program (APP) is concluded in the third quarter. This disappointed some investors anticipating a more hawkish tilt amid the record-high inflation,” FXStreet’s Analyst Haresh Menghani noted.
Meanwhile, the main currency pair also remains undermined by a possibility of a de facto European Union (EU) embargo on the Russian gas, as the Italian PM Mario Drago believes that the EU can cut the Russian energy dependence sooner than thought.
Further, a protracted Russia-Ukraine war is flaring up inflation concerns, flagging recession risks in the old continent, which could intensify the selling interest around the shared currency. The US dollar could emerge as the most sought-after safe haven in times of uncertainty and policy divergence.
Later in the day, the price action in the dollar and the yields will play out amid persistent risk aversion and Easter Monday-induced light trading. The speech by the Fed official James Bullard will be closely followed amid a data-dry US docket.
