Investors' attention is still focused on the negotiation on the adoption of the new stimulus package in the US. However, on Tuesday, US President Donald Trump announced the postponement of the negotiations until the November elections are over.
Against this background, the greenback climbed to local highs around 93.9 points, and the S&P 500 index sank 1%.
"The growth in the stock market to date has been fueled by unprecedented stimulus from both central banks and national governments, and much of this support has come from the United States," experts at State Street said.
According to experts, Trump's unexpected decision to postpone talks on the stimulus package increases the risks of a worsening of the already shaky economic situation in the US.
"The market reaction turned out to be quite typical - risk aversion and buying the dollar against other currencies. Obviously, without additional stimulus, the US economy will slow down, as will the global economy, "said strategists at Mizuho Securities.
However, after seeing the negative reaction from the market, Trump released a new statement on Wednesday, calling for support for local airlines and the extension of the employee protection program. This helped risky assets recover somewhat, forcing the protective dollar to partially abandon the previously won profits.
On Tuesday, the EUR/USD pair broke the 1.1800 mark for the first time in two weeks. A strong report on the volume of production orders in Germany allowed the single currency to strengthen, but only for Trump to reverse it with his rhetoric.
Having touched a two-week high in the 1.1805 area, the main currency pair quickly rolled back to 1.1730.
On Wednesday, the euro was able to slightly reduce losses against the US dollar. However, the continued demand for the USD limits the possibilities for the recovery of the euro.
"The weakening of the upward momentum seems to indicate that the main currency pair has entered a phase of consolidation and may be trading between 1.1640 and 1.1820," UOB experts said.
EUR / USD is expected to fluctuate based on news of US financial stimulus as well as reports from central banks. Minutes from the September meetings of the Fed and the ECB will be released this week.
Meanwhile, the $1.30 level turned out to be a tough nut to crack for the pound. It held back the GBP / USD bulls on Tuesday, as it did earlier in mid-September.
Traders continue to monitor trade negotiations between London and Brussels.
The pressure on sterling intensified after British Prime Minister Boris Johnson's representatives released a statement that Britain needs to know whether there will be a deal with the EU or not by October 15. The alliance is not yet eager to make concessions on the new deadline.
There is less time left until October 15, this means that the intensity of passions will only grow in the coming days.
According to analysts, if events for the pound develop in a negative way, then the struggle between bulls and bears on GBP / USD may quickly move to the 1.2500 area or even lower, to the 1.2200 area.
The negotiating teams will meet in London on Wednesday. Negotiations will continue until Friday and will move to Brussels next week.
Specialists at Commerzbank stressed that "GBP / USD has tested 1.3008 (mid-September high) and retreated. A failed attempt to take 1.3000-1.3070 will aim the pair at 1.2445 and 1.2200-1.2250. Only growth above 1.3080 will neutralize the bearish outlook."
