EURUSD Rallies as Euro Gained on Lagarde Speech Ahead of Fed

The EURUSD currency pair was trading up over 15 pips as the euro rallied against the US dollar, driven by the calming of investor fears regarding the EU’s banking system. The euro rallied higher after the ECB reassured investors that European banks could weather any storm.

The confirmatory messages from the ECB and the S&P ratings agency noted that EU banks had met their liquidity requirements and that many were holding deposits above the amounts required by the regulator, making them relatively safe from bank runs. 

The EURUSD’s rally was fueled by positive investor sentiment after ECB President Christine Lagarde's speech indicated that the central bank was neither committed to hiking rates further nor was it done with rate hikes, which left room for future rate hikes. 

Despite the uncertain times, Lagarde reiterated the ECB’s commitment to bringing inflation down to its target. Still, she promised an orderly process or applying restrictive credit conditions. 

A close look at the EURUSD currency pair shows that it has been rising since Thursday, March 16, 2023, a day after it crashed due to the Credit Suisse crisis. The pair recovered as the bank emerged with multiple options, including a backstop from the Swiss National Bank. 

Since then, the pair has edged higher and recouped all of its losses as investor confidence was restored following UBS's acquisition of Credit Suisse over the weekend. The euro’s strength is also underpinned by the ECB’s recent rate hike,w which occurred while the Credit Suisse debacle was still ongoing. 

Investors interpreted the ECB’s rate hike as a sign of confidence in the Eurozone’s banking system. However, the ECB carefully worded its interest rate statement saying it would continue monitoring the markets before making its next monetary policy decision. 

The euro’s strength reflects investors' optimism about the euro areas underpinned by a warmer-than-expected winter, which led to lower demand for natural gas and oil and lower energy prices during the peak energy demand season. 

Investors' attention remains on the FOMC interest rate decision scheduled for later today, which will determine how the currency pair ends the day’s session. 

*This is not investment advice. 

The EURUSD price chart.

The EURUSD currency pair was trading up 15.8 pips (0.15%) as the euro rallied against the US dollar ahead of the Fed rate decision.