September 21, 2022 02:27 AM ET
By: AnalysisWatch
The EUR/USD currency pair remains in retreat for the second consecutive day as risk aversion deepens in the market during the FED day. In addition to market concerns ahead of the Federal Open Market Committee (FOMC) meeting, escalating geopolitical concerns over Russia are also weighing on the major currency pair.
In a much-delayed televised speech, Putin said: "I say to the West, we have many weapons with which we can respond. This is not bluffing. " In addition to direct threats to the West, Putin also mentioned that Russia would take the necessary steps to defend its sovereignty.
The same raises market concerns about further geopolitical tensions between the West and Moscow, which, in turn, are likely to hurt the eurozone the most, given its proximity to Ukraine and Russia's recent sanctions. Meanwhile, headlines suggesting US Senators' demand for secondary sanctions on Russian oil also appear to be challenging the market's appetite for risk.
It is worth noting that risk aversion is driving the US Dollar Index (DXY) towards the one-year high recorded at the beginning of the month, which was up 0.23% to near 110.41 at the end of the day. In doing so, the greenback's index against the six major currencies ignores the recent pullback in US Treasury yields while respecting the Fed's hawkish bets.
However, the ten-year US Treasury yield has fallen from an 11-year high, while its two-year counterpart has fallen from a 15-year high. Risk aversion is also reflected in Western equity futures and Asia-Pacific equities.
Moving on, the ECB's non-monetary meeting announcement and comments from ECB Vice President Luis de Guindos could offer immediate direction to the EUR/USD pair.
However, the main focus will be on how the Fed manages to keep the DXY bulls' hopes alive after the 0.75% rate hike announcement, which is already priced in. In this regard, the Fed's economic forecasts and Fed Chairman Jerome Powell's speech will be key.
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