The market for the time being continues to ignore the high probability of increased inflation in the United States. Investors continue to believe that the decision by Congress to expand the budget deficit by $300 billion is a a greater evil for the dollar than the revival of inflationary pressure and the prospect of a more active interest rate hike by the Fed.
After a short pause on Thursday, the dollar was again under pressure. The main negative factor for it is an increase in the budget deficit, which is seen as a strong weakening cause. Market participants also ignore the positive inflation data that came out this week. According to the presented data, consumer inflation, as well as the values of production inflation, increased, which indicates that the Fed can more resolutely continue the process of increasing the cost of borrowing. If earlier the market believed that rates would rise 2-3 times this year, now there are opinions that they can be increased 4 times. However, before the Fed meeting there is still a whole month, so on the wave of such sentiments the dollar may continue to decline relative to the major currencies.
Another important negative factor for the dollar is the continuation of investors' expectations that other central banks of those countries whose currencies are traded against the dollar at large Forex will nevertheless follow the path of the process of eliminating stimulus measures and will eventually move to hiking interest rates. If indeed it will be, and first of all the markets hope that the ECB will do it, then it is possible to expect in the future the possibility of growth of the eurodollar pair to the levels of 1.30-1.35. However, if the Fed makes a move and will more actively raise interest rates, the process of weakening the dollar will stop and it will be necessary to weigh the balance of power between the euro and the dollar, as well as other major currencies.
Today, investors' attention will be drawn to the publication of data from the construction sector of the US economy, as well as to retail sales in the UK.
Forecast of the day:
The EURUSD pair broke into the operational space above the level of 1.2510 on the wave of weakness of the US dollar. It can adjust to this mark, and if it keeps above it, then there is a possibility of continuing its growth to 1.2600.
The USDJPY pair may continue to fall to 104.50 if it is able to gain a foothold below the 106.00 mark.
