Forex Today: Currencies respond to improvement in market sentiment, Fed takes center stage

Here is what you need to know on Tuesday, March 21:

Wall Street cheered the weekend’s news (UBS buying Credit Suisse and coordinated central bank action). The Dow Jones gained more than 1%. US yields ended flat after hitting fresh monthly lows, with the US 10-year yield rebounding toward 3.50%. The CBOE Volatility Index (VIX) dropped by almost 6%, while the US Dollar Index fell by 0.54%, posting the lowest close in a month. 

Forex market responded to the improvement in market sentiment. Developments in the banking sector and the Federal Reserve’s meeting will be a key driver for the next sessions. The FOMC meeting kicks off on Tuesday. The US central bank is in a difficult position. The market is pricing a 70% probability of a 25 basis points rate hike, with attention on the forward guidance and the wording of the statement. 

French President Emmanuel Macron’s government survived a no-confidence vote. European Central Bank (ECB) President Christine Lagarde spoke at the European Parliament, repeating that inflation is projected to remain “too high” for “too long.” In Germany, the Producer Price Index in February rose 15.8% from a year ago, which represents a smaller-than-expected slowdown. EUR/USD rose above 1.0700, approaching last week’s high, while EUR/CHF soared to 0.9960. 

GBP/USD broke its 5-day trading range, rising to above 1.2270, the highest since early February. The Bank of England will announce its monetary policy decision on Thursday. 

The Kiwi was among the worst performers on Monday, with NZD/USD retreating from monthly highs to 0.6230. New Zealand will release trade data on Tuesday. AUD/USD is holding above 0.6700 after rebounding at 0.6660. The Reserve Bank of Australia (RBA) will release the minutes of its latest meeting. 

USD/CAD dropped, matching last week’s low at 1.3650, a key support area reinforced by the 20-day Simple Moving Average (SMA). On Tuesday, Canada will report February’s Consumer Price Index, forecast to rise 0.6% in February. 

Gold stabilized around $1,980 on a volatile session that included a fresh one-year high above $2,000 and a correction to $1,965. Bitcoin fell modestly to $28,000 in a session it reached a fresh nine-month high. Crude oil prices hit the lowest since December 2021 and rebounded, rising by almost 2%. The improvement in sentiment helped offset concerns about the economic backdrop.