During the current week, EU economic instability is exerting considerable pressure on the European currency. Besides, the greenback, its rival is rapidly gaining.
The dollar's long-term rise was interrupted for some period. It dropped slightly on Thursday, September 30, as a part of the correction after the previous day's record. Notably, the USD reached its high of 2021 on Wednesday, September 29. However, the market is now in a widespread correction. It was recorded after the major currencies declined sharply against the dollar, setting new lows since 2020.
Despite the current correction, the US currency maintains its position. Experts believe that the dollar's high competitiveness contributes to its retention. The revaluation of the Fed's monetary policy prospects played an important role in supporting the greenback. The positive dynamics is backed by expectations of US macroeconomic reports. According to preliminary estimates, the US GDP grew by 6.6% year-on-year in the second quarter, while the weekly initial jobless claims decreased. According to current calculations, the reading fell by 16,000, to 335,000 claims. Analysts believe that in case this information is confirmed, the dollar will get a new impetus for growth.
A rise in the US interest rates favors the greenback strengthening. Currency strategists at Morgan Stanley Bank are confident that the US dollar will strengthen against the euro in the near term, as real interest rates exert downward pressure on the EUR/USD pair. Morgan Stanley Bank concludes that in case the US interest rates rise significantly to European ones, the greenback will increase sharply against the euro. The current situation weakens the EUR/USD pair, which was trading in a low range of 1.1599-1.1600 on Thursday morning, September 30.
The European currency is steadily falling. The euro is hurt by accelerating inflation in the region. The ECB's resolution to delay the completion of the quantitative easing program (QE) put pressure on the EUR. The European regulator explained its actions by the fact that it has more time to take the right decision than its US counterpart.
However, the ECB actions produced a negative effect on the euro. Consequently, instead of the predicted market reaction that rising inflation contributes to the national currency appreciation (in this case - EUR), the situation has sharply worsened. The current price growth has increased the outflow of investors from the European currency, weakening the position of the latter.
Inflation has also deeply affected the euro's dynamics, which is still a real threat to the EU economy. Notably, the annual growth rate of import prices in Germany exceeded the 40-year highs, reaching 16.5% year on year. Consequently, monthly price growth amounted to 1.4%, which is much lower than the average reading (1.7%), recorded since the beginning of this year. The current indicator is nine times higher than the average all-time one since 1962. However, experts predict the euro's recovery in the medium term, while in the near-term their forecasts for EUR are not very optimistic.
