The US dollar started the new week with multi-directional dynamics. It remains between two contradictory actions. In such a state, experts say that it is difficult for the US currency to rise, but there is also no reason for it to decline.
At the end of last week, the above-mentioned currency surprised the markets by making sharp multi-directional movements in an attempt to consolidate with the status of a protective asset. However, these efforts were unsuccessful. Currently, the US dollar has regained some equilibrium, although some unorganized dynamics remain.
The Fed's hawkish intentions regarding multiple rate hikes this year have contributed to the US dollar's multi-directional movements. Against this background, it held to the previous rebound in the EUR/USD pair, as investors included several rate increases in its price. Experts said that the aggressive rhetoric of the regulator contributes to a sharp strengthening of the US dollar, combined with an increase in the yield of US Treasury bonds. The current yield on ten-year Treasuries has risen from the previous 1.772% to 1.793%. Experts believe that this provides additional support to the US currency.
On Monday morning, the EUR/USD pair was trading in the range of 1.1418-1.1419, trying to rise slightly. However, it is hard for it to reach new peaks right now.
Experts note the predominance of the "bearish" mood in the EUR/USD pair, which was facilitated by the breakdown of the mirror level of 1.1465 last Friday. At this point, the bulls are trying to control the situation. Their offensive will be successful if the levels of 1.1478 and 1.1529 are reached. However, the "bullish" scenario is likely to be canceled if the bears consolidate at the support level of 1.1401. In this case, the path towards the levels of 1.1353 and 1.1285 will be open.
According to experts, multiple increases in the Fed's interest rates in 2022 are necessary to avoid overheating the US economy. If overheating occurs, financial crises are possible, which will have a devastating impact.
Markets are still worried about the extremely high level of US inflation (7% in annual terms). According to preliminary estimates, this is three times higher than the pre-pandemic. The reasons for this growth are active monetary stimulus, the disruption of supply chains amid COVID-19, and problems in the US labor market, including higher wages due to a shortage of workers and more frequent job changes.
Experts consider raising the interest rate of the Fed as one of the main ways to curb US inflation. Most market participants expect this in March 2022, although some expected it to rise at the next meeting of the regulator, scheduled for January 26. Analysts admit that the Fed's strategy may be more aggressive than expected. The implementation of such a scenario will direct inflation downwards, but will significantly affect US economic growth.
Currently, the US currency is trying to rise and consolidate in an upward trend. However, these actions are held with varying success. Concerns about its further decline are provoked by the rising bearish mood on the EUR/USD pair. Traders built up positions for three weeks to buy the US dollar, and then changed tactics to the opposite. Throughout the previous week, large investment funds have reduced USD purchases by 5%. Experts conclude that the continuation of the current trend contributes to the US dollar's further decline.
