There is an ambiguous situation in the market. The greenback can either extend its rally or plunge. A sharp decline in yields on US Treasuries could lead to a potential nosedive in the price of the US dollar, analysts say.
The greenback advanced and pulled back slightly against its main counterparts during early trading on March 3. A series of economic statistics is set for release today. The eurozone will present its composite PMI for February, while the ISM Services PMI will be published in the United States.
In case of mixed or disappointing results in Europe or the US, EUR/USD is likely to plummet. In fact, there are prerequisites for such a significant drop in price. Federal Reserve Board Governor Lael Brainard unexpectedly shared a different view on inflation and employment in the US. She refrained from commenting on the Fed's recent dovish monetary policy stance and talked about challenges created by inflation and employment for policymakers. Brainard suggested that the regulator could respond to them in an uncommon way and that it was important to monitor the dynamics of the bond market at the moment.
Meanwhile, Fabio Panetta, Member of the Executive Board of the ECB, said that the central bank should expand bond purchases or even increase the quota earmarked for them. It would help the regulator keep yields down. Only a few members of the Board agreed with Panetta's point of view.
Under the circumstances, both the euro and the greenback are becoming volatile. On top of that, increased risk sentiment and a sharp decrease in US Treasuries bond yields only add fuel to the fire. A strong greenback started to depreciate. Today, EUR/USD is trading in the range of 1.02082–1.2083. The euro, as well as the US dollar, is trying to retain its positions.
A plunge in bond yields cooled the market down and increased demand for risk assets. However, experts warn of another bond sell-off amid a possible improvement in the US economy. The recent turmoil in the financial markets triggered a spike in bond yields across the world. Experts believe that the situation can repeat. Currently, global securities fell from record highs, while commodities became extremely volatile. Therefore, investors are very cautious about assessing the prospects for the global economy amid the implementation of stimulus measures, primarily the $1.9 trillion US rescue plan.