EUR/USD steadies near seven-week high around 1.0850 after post Fed whipsaw

• EUR/USD grinds near multi-day top despite retreating in the last hour, stabilizes after five-day uptrend.
• US Dollar fails to cheer Fed’s 0.25% rate hike despite bouncing off multi-day low in the last.
• Fed Chair Powell’s rejection of rate cuts in 2023, US Treasury Secretary Yellen’s comments on deposit insurance favored USD rebound.
• ECB policymakers appear more hawkish than Fed signals, suggesting more room for Euro upside.

EUR/USD bulls take a breather close to a two-month high, following a five-day uptrend, after Federal Reserve’s (Fed) failure to please US Dollar bulls despite announcing a 0.25% rate hike. That said, the Euro pair seesaws around 1.0860, after a brief run-up to 1.0912, as the latest greenback licked its wounds during the last hour.

Fed matched market forecasts by announcing 25 basis points (bps) rate hike but statements like “some additional policy firming may be appropriate,” instead of “ongoing increases in the target range will be appropriate” gained major attention and drowned the USD.

Fed Chair Jerome Powell, however, tried to tame the rate cut hopes by saying that officials do not see rate cuts for this year, which in turn allowed breathing space to the greenback bears in the last.

Apart from the Fed announcements, US Treasury Secretary Janet Yellen’s comments also allowed the US Dollar Index to rebound from a seven-week low, by way of challenging the risk appetite, as she ruled out considering “blanket insurance” for bank deposits. 

On the other hand, policymakers from the European Central Bank (ECB) appear more hawkish and stand ready for heavy rate hikes if the banking crisis eases, which in turn propelled the EUR/USD more. That said, ECB President Christine Lagarde reiterated on Wednesday that underlying inflation dynamics in the Eurozone remain strong, as reported by Reuters. ECB’s Lagarde, however, also said that they are neither committed to raising further nor are we finished with hiking rates. Further, ECB policymaker and Bundesbank Chief Joachim Nagel said, “There’s still some way to go, but we are approaching restrictive territory.”

Amid these plays, Wall Street closed in the red but yields and the US Dollar Index (DXY) both closed in the red.

Moving on, the Asia-Pacific market’s reaction to the Fed moves and second-tier US data will be important for fresh impulse.

Technical analysis

A clear upside break of the mid-February top, around 1.0800, allows EUR/USD to aim for 1.0930 horizontal hurdle before targeting the YTD high surrounding 1.1033.