Despite opening the week with a bullish gap, the EURUSD has lost traction and fallen below 1.0700. Risk flows are struggling to get pace as investors strive to figure out if major central banks will be able to limit the global financial crisis.
Markets remain cautious ahead of the Fed’s policy remarks on Wednesday.
UBS Group AG agreed to purchase Credit Suisse Group AG over the weekend. In a deal scheduled to finalize by the end of 2023, UBS would allegedly pay $3.23 billion for Credit Suisse and bear up to $5.4 billion in losses. Moreover, the Federal Reserve (Fed) said that it will resume giving daily swaps to the Bank of Canada (BoC), Bank of Japan (BoJ), Swiss National Bank (SNB), and European Central Bank (ECB) in order to support those banks. with increased financial demands.
Although these events helped to enhance market sentiment at the start of the week, safe-haven flows appear to have resumed in the European morning. At the time of writing, US stock index futures were down 0.6% to 1.1%, while Euro Stoxx 50 Futures were down 1.2%.
Investors may be seeing the current move by the major central banks as a hint that the liquidity problems are more severe than previously assumed. Indeed, the benchmark 10-year US Treasury bond yield has already fallen 3% on the day, and the CME Group Fed Watch Tool indicates that markets are pricing in a more than 50% chance that the Fed will leave its policy rate unchanged following its March meeting on Wednesday.
In the in the present market climate, dovish Fed bets force the US Dollar to remain on the defensive. Yet, if investors continue to seek sanctuary, the EURUSD may struggle to gain from the broad USD decline.
