Anxiety over anticipated Fed moves could be driving the markets again.
The fallout from diverging European central bank policies sparked a dollar rally Tuesday, bringing it to a 12-year high while stock markets sold off as traders reacted to the EU bond-buying program and the fear that the Fed could signal it is moving even closer to a rate hike when it meets next week.
EU finance ministers agreed on Tuesday to the details of a 315 billion euro ($338 billion) investment plan to help revive the European economy without piling up more debt. EU lawmakers must now approve the fund.
As the dollar rose, the euro slumped to $1.07 against the greenback, edging close to parity much sooner than some strategists had expected. The S&P 500 was whipsawed, losing 1.7 percent to 2,044, in its worst selloff since Jan 5th.
"It certainly is European QE (quantitative easing) to a certain extent, but it's much more in my view a reaction to the Fed. In a lot of ways, we expect the weakness to continue to the 18th and what the Fed is going to say or do is fluid right now," said UBS equity strategist Julian Emanuel.
"We expect the word 'patient' to be removed (from the statement), but the Fed purposely gave itself a lot of flexibility. ... We may get to the 18th and quite frankly may not have that much more visibility. We continue to be cautious here."