Some analysts suppose that the US dollar is a rival to the global economy. The global economic recovery prevents the greenback from a rise. However, the euro also has few chances to gain in value.
At the moment, the pace of the global economic growth is quite high, but this puts pressure on the greenback. The US dollar's fall against the euro, logged early this week, was caused by the interest in riskier assets. This trend is likely to continue. On Tuesday, May 25, the euro/dollar pair was hovering between the levels of 1.2235-1.2236. It was still trading near the level of 1.2200, trying to break above 1.2240. However, it failed to do so. Analysts foresee a reversal in the euro/dollar pair in the near future.
A confident rise in the global economy contributes to the US dollar depreciation. Countries have found ways to overcome the virus-induced crisis. In the whole world, both economic activity and consumer demand are growing. Analysts think that higher global economic activity leads to a further decrease in the US dollar. During the period of the rapid economic growth, the US needs a weak dollar. Experts emphasize that it is necessary to support national producers. At the same time, the US monetary authorities use the received money to boost the local economy.
Notably, since February 2021, the reserves of the US Treasury in the accounts of the Fed have decreased to $832 billion from $1,630 billion. This excess liquidity in the banking system provokes a situation in which the USD acts as a funding currency. Against the background of an oversupply of dollars, demand for risky assets is growing and the greenback is falling.
Optimism of market participants also puts downward pressure on the greenback, thus increasing demand for riskier assets. Besides, investors are less preoccupied with the inflation growth and its influence on global central banks, especially on the US Fed.
According to experts at Unicredit, in the near future, the regulator's policy will remain the same. This may result in bigger trade volumes of the euro/dollar pair. At the same time, the euro is likely to hover in a wide range of 1.2250-1.2150 against the greenback.
However, many analysts suppose that the real exchange rate for the euro is near 1.3000. It will take a lot of time to reach it. The single currency may deviate by 10 figures or more from the mentioned level. However, in the next two years, the euro/dollar pair may try to approach not just 1.3000, but also 1.4000. This forecast seems unreal, but if the USD continues losing in value, this prediction may come true.
Economists at Credit Agricole think that under the current conditions, a rise in the euro/dollar pair could be short-lived. The weakening dollar will hardly boost the euro. At the moment, the euro is supported by positive forecasts about the eurozone economic growth and inflation rate. However, revision of the forecasts and traders' concerns ahead of the ECB meeting halts the euro's appreciation. The meeting is expected to take place on June 10.
