Investing.com -- EUR/USD fell sharply on Tuesday, dropping to one week lows, as German 10-Year Bunds slipped into negative territory for the first time on record and increased Brexit fears prompted investors to exit their positions from the euro and pound sterling.
The currency pair traded between 1.1189 and 1.1298 before settling at 1.1206, down 0.73% on the session. The euro has closed lower against the dollar in three of the last four sessions. Since clearing 1.14 last week, the euro has fallen by more than 1.25% against its American counterpart. Nevertheless, EUR/USD is up by more than 3% since starting the year below 1.09.
EUR/USD likely gained support at 1.1055, the low from March 15 and was met with resistance at 1.1616, the high from May 3.
Foreign exchange traders continued to keep a close eye on poll results in the U.K., which increasingly show a British public shifting their support to the "Leave," campaign, ahead of next week's controversial Brexit referendum. An online poll from TNS said a Leave vote widened its lead over a vote to "Stay" by a 47-40 margin, as Rupert Murdoch's Sun newspaper backed a campaign to depart from the European Union. Another survey, a YouGov poll for The Times, found that the "Leave" vote held a 46-39% lead, while 11% remained undecided. It came days after a popular columnist from The Telegraph broke ranks with the British establishment and supported a vote to leave. Last week, the Remain campaign held a slight one point lead in the same YouGov poll.
In recent weeks, a number of top political leaders and economists including U.K. prime minister David Cameron, Germany chancellor Angela Merkel and International Monetary Fund managing director Christine Lagarde have issued stark warnings in recent weeks on the ramifications a British departure from the EU could have on the global economy at large. On the other end, House of Commons Leader Chris Grayling, Culture Secretary John Whittingdale and former London mayor Boris Johnson have shown support for the Leave movement.
GBP/USD plunged more than 1.15% to an intraday-low of 1.4091. Over the last three weeks, the British pound has fallen more than 2.62% versus the U.S. dollar. In Tuesday's session, British pound volatility hit its highest level in two decades.
Yields on German 10-year bunds tumbled to a record low at Minus-0.034 before rallying slightly to Minus-0.008, as risk-adverse traders continued to pile into safe-haven assets, pushing yields lower. As a result, financial stocks throughout the euro zone tumbled on Tuesday. Shares in both Deutsche Bank AG (DE:DBKGn) NA O.N. (NYSE:DB) and Credit Suisse (SIX:CSGN) Group AG (NYSE:CS) fell sharply, each touching down to fresh record-lows during the session. In Asia, yields on the Japan 5-Year fell to a record-low at Minus-0.28%.
Elsewhere, the Federal Reserve convened for its two-day June monetary policy meeting, which will conclude with a closely-watched interest rate decision on Wednesday afternoon. While the Federal Open Market Committee (FOMC) is not expected to raise short-term interest rates at the meeting, Fed chair Janet Yellen could provide clues on whether the U.S. central bank could lift rates before the end of the fall. The FOMC has left the target range of its benchmark Federal Funds Rate steady at a level between 0.25 and 0.50% at each of its first three meetings this year.
Any rate hikes by the FOMC this year are viewed as bullish for the dollar, as foreign investors pile into the greenback in order to capitalize on higher yields.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, surged more than 0.60% to an intraday high of 95.14, before falling back to 95.03 at the close of U.S. afternoon trading. The index is still down by more than 5% since early-December.