The US dollar once again took a roller coaster ride. It declined, yielding to the euro. At the same time, the greenback remains remarkably calm, expecting a rebound shortly.
The strong probability that the Fed will not cut its easing policy program has backstabbed the US dollar. The markets are worried that the Fed will change its mind to start reducing the quantitative easing program (QE). The reason for this is the macroeconomic turbulence, which is increasing amid a decline in the US business activity and a spread of the delta variant. Fed officials are concerned that the coronavirus may damage the US economy during the program tapering.
Currently, the USD growth slowed down and the EUR got a chance to improve its weakened position. On Monday evening, August 23, the euro soared against the greenback. Last week the euro fell by 0.8% against the US dollar. Investors were refraining from risking due to concerns about the recovery of the global economy. On Tuesday morning, August 24, the EUR/USD was recouping earlier losses near 1.1741.
According to expert observations, the EUR/USD pair is gradually climbing out of the pit of decline. The catalyst for a slow but steady rise of the pair is the growing business sentiment indices in Europe, which are ahead of similar US indicators. According to the latest Purchasing Managers' Index (PMI) for August in the US and the eurozone, the advantage remains with the latter. Notably, the US PMI Composite dropped to 55.4 points in August from 59.9 points in the previous month. In the eurozone, the composite index dropped to 59.5 points in August from 60.2 points in July. The gap between the indicators has become noticeable in August. The US stock and bond markets are overbought, and the national economy has slipped, having exhausted its potential after the introduction of the easing policy.
In the meantime, the situation negatively affected the greenback trend but allowed the euro to recoup its earlier losses. According to experts, the technical indicators support the euro. The divergence of the MACD indicator suggests that the euro will grow to 1.2100. Although during August, the EUR/USD pair hardly changed at all. At the end of July, there was an unsuccessful attempt to break the 1.1900 level. As a result, the EUR/USD pair slipped below the support level of 1.1750-1.1760 and got back on track. Experts anticipate further recovery of the pair, which is gaining strength before the next breakthrough.
According to analysts, the cutting of the QE program, which leaves no doubts about its implementation, will have an enormous impact on the dynamics of the EUR/USD pair. The only question remaining is its execution timing. Economists believe that the winding down of the QE program will occur before the end of this year, but it will be slow and will not affect the rise in rates in 2022. Today, the US dollar has all the chances to grow. Strengthened by its serenity, the USD may find its way out of the financial maze into which the monetary authorities dragged it.
