EUR/USD SEEKS CUSHION AROUND 1.0700 AS FED TO AVOID BIGGER RATE HIKES AMID SVB COLLAPSE

The EUR/USD pair is gauging a cushion near the round-level support of 1.0700 in the Asian session. The major currency pair has corrected from 1.0740 after exhaustion in the upside momentum. The shared currency pair is expected to remain on the tenterhooks ahead of the release of the United States Consumer Price Index (CPI) data.

The US Dollar Index (DXY) has extended its recovery to near 104.00 as investors have trimmed short-liquidation after a sheer sell-off. The rationale behind short unwinding in the USD Index is the anxiety among the market participants for the US inflation, which is likely to be a major trigger ahead.

Analysts at CIBC are of the view that “A further increase in prices at the pump and continued pressure in core categories suggest that prices rose by an uncomfortably fast 0.4% in February. Looking at core (ex. food and energy) categories, shelter prices are set to peak imminently as the typical lags with new leases that are resetting at lower rates kick in, but continued pressure in core services outside of the shelter, in line with the tight labor market, will keep the Fed on a tightening path.

S&P500 futures have shown a dramatic recovery in the Asian session after a choppy Monday as investors are anticipating a smaller interest rate hike from the Federal Reserve (Fed) as the catastrophic collapse of Silicon Valley Bank (SVG) has deepened fears of the US recession. Meanwhile, the return generated on 10-year US Treasury yields has extended above 3.57%.

On the Eurozone front, MNI reported that the European Central Bank (ECB) was planning to go ahead with the 50 basis points (bps) rate hike at its upcoming meeting despite sliding market rate expectations amid Silicon Bank Valley turmoil.

Considering the fact that, Eurozone inflation is extremely solid and has not softened meaningfully yet. Therefore, ECB President Christine Lagarde would have no alternative than to tweak interest rates further.