The Federal Reserve could start raising interest rates as early as March 2022
The euro plunged dramatically on Friday as the dollar rallied across the market, buoyed by risk aversion that reemerged amid rising coronavirus cases and the spreading Omicron variant that threatens to derail the fragile economic recovery. On Sunday, the Netherlands has announced that it will go into a strict lockdown to limit the spread of the Omicron variant.
Against this backdrop, global stock markets extend the decline on Monday while the safe-haven greenback stays on the offensive versus high-yielding counterparts. Commodity currencies keep bleeding as well, with Brent crude being back below $71, threatening the $70 figure amid growing concerns over the outlook for global energy demand that could be dented by the pandemic.
The EURUSD pair derived support from the 1.1230 area to bounce marginally ahead of the opening bell in Europe. The prices extended gains to the 1.1255 intermediate barrier that could cap further recovery in the short term as the common currency remains weak, with bearish risks persisting for the time being.
Furthermore, there are some speculations in the market that the Federal Reserve could start raising interest rates as early as March 2022, which is adding to a downbeat sentiment surrounding the euro amid the diverging monetary policy as the ECB plans no hikes next year.
EURUSD would stay vulnerable to further losses as long as risk-off flows dominate markets. Traders will keep a close eye on coronavirus-related headlines due to the lack of economic data today. Should risk aversion intensify during the North American session, the pair may turn negative and even threaten the 1.1230 mentioned support, followed by the 1.1200 psychological level. On the upside, a steady recovery above the 1.1350-1.1360 area would ease the bearish pressure surrounding the European currency.