Throughout this week, the US currency continues to struggle against a prolonged weakening. The chances of USD growth are small, but it is ready to take advantage of this opportunity.
On the evening of Wednesday, May 26, the US currency managed to strengthen slightly after the statements of Richard Clarida, Deputy Chairman of the Federal Reserve. Earlier, the official said that the US regulator will curb inflation and organize a so-called "soft landing" for the national economy. Such comments from the representative of the Federal Reserve contributed to the growth of the dollar index (up to 90.08 points), allowing it to catch up over the past two days. Against this background, the yield on 10-year US Treasury bonds fell to 1.557% from the previous 1.564%. However, there is a silver lining: the dollar has benefited from the current situation, having managed to strengthen a little. On the morning of Thursday, May 27, the EUR/USD pair was trading near 1.2201, trying to climb higher.
According to currency strategists at Danske Research, the prospects for the EUR/USD pair are quite optimistic. Experts believe that until the next Fed meeting, scheduled for June 15-16, the pair will remain in a wide range of 1.2000–1.2400. The bank's experts expect the inflationary pressure to continue. In the short-term planning horizon, the EUR/USD pair may sink to 1.2000, Danske emphasizes.
According to most experts, in the near future, the key topic will be the question of the future monetary strategy of the Federal Reserve. On the agenda of the regulator and financial markets is a possible refusal to actively stimulate the US economy. Last month, Jerome Powell, the Fed chairman, declined to discuss raising rates or reducing the asset purchase program. However, now the representatives of the Federal Reserve are ready to consider these issues and slow down a little in monetary stimulation of the national economy. Experts believe that a tipping point has come when the regulator's policy may change. Currently, the Fed continues to inject liquidity into the US economy, but among the monetary authorities there are voices of opponents of this strategy.
According to Randal Quarles, vice chair for supervision of the Federal Reserve Board of Governors, if the macroeconomic indicators strengthen, central bank managers will have to reduce the pace of purchases of US government bonds. At the same time, R. Quarles expects a short-term acceleration of annual inflation above the target level of 2%. Such changes will occur with an increase in economic activity and a reduction in the unemployment rate. If this scenario is implemented, the program of buying up state bonds and mortgage bonds in the amount of $120 billion per month may be curtailed. At the same time, short-term interest rates will still remain near zero, the Fed vice chairman stressed.
According to some analysts, the so-called "waterfall" of liquidity on the part of the Federal Reserve provokes distortions in global markets. However, experts are surprised that with such financial distortions, the dollar has not fallen into the abyss, but is trying to stay on its edge. Experts believe that the reasons for the relative stability of the USD are the subsidence of the commodity market and the low level of profitability of most world currencies. To further reduce the US currency, it is necessary to increase the price of hydrocarbons, primarily oil, which peaked in March this year, and then returned to a protracted consolidation.
Many economists believe that the dollar is a kind of mirror of inflation expectations, reflecting current financial trends. It is difficult to disagree with this, since the USD is most often the litmus paper of the processes taking place in the global economy. In the near future, all financial issues will be focused around inflation and the labor market, according to Danske Bank. At the same time, the global macroeconomic picture will remain unchanged, experts conclude.
