EUR/USD falls as USD Index recovers intraday losses ahead of central bank decisions

• EUR/USD faces pressure near 1.0900 amid uncertainty over the ECB interest rate decision.
• The ECB is expected to keep interest rates unchanged at 4.5% straight for fourth time.
• Fed Daly warned that interest rate cuts should not be compromised with the agenda of price stability.

The EUR/USD pair falls from the round-level resistance of 1.0900 in the late European session. The major currency pair struggles to hold ground amid uncertainty over central bank decisions ahead.

S&P500 futures have added significant gains in the London session, portraying an improvement in the risk-appetite of the market participants. The US Dollar Index (DXY) recovers day’s losses but struggle to hold the immediate support of 103.15. A breakdown below the same would open fresh downside towards the crucial support of 103.00.

The USD Index is failing to have a firm-footing despite the odds of an interest rate cut by the Federal Reserve (Fed) in the March monetary policy meeting have dropped significantly. As per the CME Fedwatch tool, chances favouring a rate cut by 25 basis-points (bps) in march have dropped to 46% from 70%, which were recorded two weeks ago.

San Francisco Fed Bank President Mary Daly cited current monetary policy as in good shape and risks are more balanced. He advised for Fed to reduce rates carefully without impacting the progress in inflation towards the 2% target.

On the Eurozone front, investors shift focus towards the monetary policy decision by the European Central Bank (ECB), which will be announced on Thursday. The ECB is expected to maintain the main refinancing operations rate unchanged at 4.5% for the fourth time in a row. Market participants will keenly focus on the guidance on interest rates.

While talking at the sidelines of World Economic Forum (WEF), ECB President Chistine Lagarde cited that the central bank could start reducing interest rates from late Summer.