Forex Market: EUR/USD pressured by talk of new sanctions on Russia, US 2-year bond yields surge to 2.5%

EUR/USD extended a two-day streak of losses on Monday, as US bond yields surged on expectations of sharp interest rate hikes by the Federal Reserve, while the common currency was pressured by talk of fresh European sanctions on Russia.

Concerns over economic damage stemming from Russia-Ukraine military confrontation have been weighing on the Euro, which plunged to a 2-year low against the US Dollar in March.

Germany announced over the weekend that the West would agree on additional sanctions on Russia during the upcoming days after Ukraine accused Russia’s military forces of war crimes. Russia was accused of conducting a “massacre” in the town of Bucha, but Moscow denied such acts.

Germany’s Defense Minister Christine Lambrecht said the European Union would have to discuss discontinuing gas imports from Russia, which provides 40% of Europe’s gas needs.

“Negative news on the war or a further lift in energy prices could see EUR/USD test $1.0800,” Commonwealth Bank of Australia analysts wrote in an investor note, cited by Reuters.

Meanwhile, the latest macro data coming out from the United States revealed the rate of unemployment in the country had decreased to a 2-year low of 3.6% in March. The figure added to investor expectations of a stronger Fed resolve to cope with inflation by hiking interest rates sharply.

Markets have already priced an almost 4/5 chance of a 50 basis point interest rate increase in May.

“We now expect the Fed to hike by 50bps in May, June, and July, before dialling the pace back slightly by delivering 25bps hikes at the September, November and December,” Kevin Cummins, chief US economist at NatWest Markets, said.

“This will bring the funds rate into restrictive territory sooner, with 2.50-2.75% by year-end 2022.”

US 2-year Treasury yields stood at levels near 2.5% for the first time since early 2019 on Monday.

As of 8:51 GMT today EUR/USD was edging down 0.19% to trade at 1.1026. Earlier in the trading session the major Forex pair slipped as low as 1.1019, which has been its weakest level since March 29th (1.0969).

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.1050
R1 – 1.1073
R2 – 1.1098
R3 – 1.1121
R4 – 1.1143

S1 – 1.1025
S2 – 1.1002
S3 – 1.0977
S4 – 1.0951