The series of monetary incentives from the Fed, which has somewhat supported the US dollar, is almost over. Amid the potential curtailment of incentive programs, the indicated currency has soared, but long it can hold on?
On Thursday evening, the US dollar surged to a nine-month peak amid concerns over the spread of a new delta strain of coronavirus and the possible cut in stimulus programs of the Fed. According to the minutes of the Fed's July meeting, it is expected to curtail the monthly purchases of bonds by the end of this year. However, there were difficulties regarding the timing of the completion of this program. Representatives of the regulator found it difficult to answer which of the three factors poses the greatest risk to the economic recovery – the COVID-19 pandemic, inflation, or unemployment. It can be recalled in the report that the number of initial applications for unemployment benefits in the US fell by 29 thousand, namely to 348 thousand during the first week of August. This is amid experts' forecast of 363 thousand.
According to Fed representatives, the necessary conditions to slow down the pace of repurchase of financial assets may develop by the end of this year. Such a situation is possible if the development of the American economy meets the expectations of the authorities. At the same time, many consider the most appropriate time for such measures to be the beginning of 2022.
"Fed officials will signal the current steps to normalize monetary policy, providing the US dollar with constant support," Westpac analysts say.
The US currency reacted weakly to the current macroeconomic reports, particularly to the number of applications for unemployment benefits. Along with this, experts recorded the strengthening of the US dollar in relation to commodity currencies, primarily to the New Zealand and Australian dollars. Traders and investors reduced their risk appetites, which almost instantly affected the dollar's dynamics.
Currently, the EUR/USD pair is under pressure after the publication of the minutes of the previous meeting of the Open Market Committee (FOMC). The driver of the decline is still the possible curtailment of incentive programs, which may take place this year.
On Friday morning, the main currency pair was trading at the level of 1.1680, below the key level of 1.1700. Experts consider this to be the lowest rate since November 2020. The specialists pay attention to downside risks, although oversold conditions in the pair are gradually being corrected.
According to current data, technical indicators in the EUR/USD pair are gradually recovering, but they are still in the negative zone. At the same time, a strong support level for the euro was formed near the level of 1.1674. The "bulls" are trying to seize the initiative from the "bears" during the day. Analysts believe that the "bullish" mood in the EUR/USD pair may strengthen. This is possible in the case of a breakdown of the mirror level of 1.1698, which will open the way to the levels of 1.1743 and 1.1777. If the alternative scenario is implemented, the pair will remain within the price range of 1.1674-1.1698. At the same time, it may recover to the level of 1.1750, but it is currently hard to reach this.
Next week, the focus of the market is on the annual Jackson Hole Symposium, which will take place from August 26 to 28. The expectations for the Fed's decisive action are associated with it. First of all, the regulator is expected to announce the start of the curtailment of the securities purchase program. In such a situation, the US dollar will experience turbulence again, demonstrating the high volatility of its rate.
