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US stock indexes showed a noticeable decline on Wednesday. The S&P500 sank 2.6%, and the Dow Jones fell 2%. At the same time, the US dollar reached its highest values in a week and a half – around 90.8 points.
Concerns over the economic impact of the pandemic, delays in the spread of coronavirus vaccines, and uncertainty over the timing and scope of a new fiscal stimulus program in the United States have contributed to investor risk aversion and increased demand for a safe greenback.
"Risk aversion supporting the dollar is a healthy correction after a unilateral rally in risky assets," said strategists at Mizuho Securities.
The cautious tone of the Fed's comments also played a role in strengthening the USD .
The first meeting of the American Central Bank this year did not bring any surprises. The regulator kept the interest rate at 0-0.25% and announced that it will continue to buy back assets until there is significant progress in achieving employment and inflation targets.
"The pace of recovery in economic activity and employment has slowed down in recent months. At the same time, the weakness was concentrated in the sectors most affected by the pandemic," the FOMC said in its final communique.
After the announcement of the Fed's verdict on monetary policy, US stock indexes continued to decline.
When stocks fall, as a rule, the safe greenback rises, while putting pressure on the EUR/USD.
The day before, the main currency pair fell below 1.2100, breaking through the support in the area of the 55-day moving average and going to the area of two-month lows.
The euro has suffered significant losses against the US dollar after the ECB said that lower interest rates in the EU could limit the recent growth of the single currency.
The EUR rate is also negatively affected by the uncertain situation with the supply of vaccines to the European market.
European Health Commissioner Stella Kyriakides, on Wednesday, called on AstraZeneca to meet contractual obligations for the COVID-19 vaccine following reports of cut supplies to the EU. Traders fear the spread of the coronavirus will slow the region's economic recovery.
"The topic of the weak pace of economic recovery in Europe and the shortage of vaccines is now in the focus of attention. The natural winner in such conditions is the dollar," said Danske Bank specialists.
The technical picture for the euro has also deteriorated in recent days. If on Tuesday it was possible to speak of a local upward trend in EUR/USD, now it is, at best, a sideways range of 1.2050-1.2190.
Given the continued market interest in the US dollar and some concerns of ECB officials about the strength of the single currency, it can be assumed that the next stop for EUR/USD will be the level of 1.2000. If it is also broken, then the road to 1.18 and below will open for the pair.
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