EUR/USD climbs above 1.0760 ahead of FOMC decision

Ahead of the March policy meeting of the Federal Reserve, the EUR/USD remains stable above the 1.0740s. Policymakers at the ECB have remained preoccupied with banks and avoided discussing monetary policy. Traders anticipate a 25 basis point rate increase by the end of the FOMC’s March meeting, which is on Wednesday.

The EUR/USD pair extends its advance to four straight days as a result of an uptick in market sentiment following a two-week period of market volatility. As UBS acquired Credit Suisse and American banks helped First Republic Bank, the problems caused by the banking sector crisis started to improve. The EUR/USD exchange rate hit a low of 1.0703 and is currently trading at 1.0768.

Wall Street extends its recovery to two consecutive days, with the major stock indices gaining between 0.51% and 0.96%. Global authorities stepping in to reassure that the crisis would not blow up and trigger another financial crisis increased the appetite for risk-perceived assets. The US Dollar (USD), a safe-haven play, continues to drop, as shown by the US Dollar Index (DXY). The DXY is down 0.05%, at 103.253.

The EUR/USD continued to rally to a five-week high of 1.0788 but fell shy of testing the 1.0800 mark. European Central Bank (ECB) policymakers have been crossing newswires, mainly discussing the Eurozone’s (EU) banking system and liquidity conditions amidst a period of higher interest rates.

US data-wise, the economic docket revealed that Existing Home Sales exceeded estimates in February, due to falling mortgage rates, after dropping for 12 straight months, evidence that the housing market could be stabilizing.

Meanwhile, traders focus shifted to the FOMC’s monetary policy decision. The Fed has the challenge of providing stable prices and financial stability. Given that inflation stays at three times the Fed’s target, the Fed could take a page of the Bank of England’s (BoE) blueprint for handling financial stability. Last year, the BoE had to step up and provide liquidity to calm the markets. Yet the BoE tightened monetary policy in November and hiked rates by 75 bps. Therefore, if the Federal Reserve follows that path and delivers a hawkish hike, the EUR/USD might reverse course and erase some of the last four days’ gains below 1.0700.