The EUR/USD pair has surged above the crucial psychological barrier of 1.1000 during early Asian trading. The major currency pair aims to maintain its position above 1.1000, as the US Dollar Index (DXY) is experiencing considerable selling pressure due to its inability to surpass the two-week-old resistance of 102.20.

Prior to the Federal Reserve’s (Fed) monetary policy meeting and fears of a potential default by the US government, market participants heavily dumped the S&P500. As a result, market sentiment is negative, and further rate hikes by the Fed could deepen concerns of a recession in the US economy.

Demand for US government bonds has increased significantly since the US Treasury stated that it would be unable to make payments if the debt ceiling was not raised by June 01. As a result, yields on 10-year US Treasury bonds have dropped sharply to nearly 3.43%.

The USD Index has fallen below 102.00 and is expected to remain uncertain as Fed chair Jerome Powell outlines a plan to address stubborn inflation. Neutral guidance from the Fed is anticipated due to the weakening US labor market conditions. 

Furthermore, Morgan Stanley recently announced plans to lay off 3,000 more jobs as deals have slowed, while March JOLTs Job Openings data dropped sharply to 9.59M from the consensus of 9.775M.

On the Eurozone front, mixed inflation data supports a potential interest rate hike from the European Central Bank (ECB). Preliminary headline inflation unexpectedly rose to 7.0%, while core inflation slightly softened to 5.6% versus the anticipated 5.7%. 

ECB President Christine Lagarde is expected to announce a continuation of a 50 basis point (bp) interest rate hike, given the severe and persistent nature of inflation.


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