Many analysts believe that the expected US macro statistics will only slightly change the dynamics of the US dollar. There is growing confidence in the markets that the price of US currency will decline. In such a situation, USD "bears" will benefit.
This week, the US dollar resisted pressure from risk appetite and expectations of the upcoming Fed rate hike. On Wednesday evening, it entered a downward spiral. Its decline against the euro took place amid a reduction in the yield of US government bonds. At present, the 10-year US Treasury yield has fallen to 1.94% (from the previous 1.95%), while remaining at a high level for the last two years.
Currency markets are waiting for new reports on US annual inflation. According to preliminary forecasts, the inflationary spiral in January 2022 unwound to its maximum values (7.3%). It is worth noting that this has not been recorded since February 1982. Experts believe that the confirmation of these data will force the Fed to reconsider the current monetary policy. It is possible that the regulator will speed up the process of raising the key rate.
The current situation turned out to be in the hands of the dollar bears. According to experts, they may take the lead as the markets are not sure about the strengthening of the US dollar. Moreover, strengthening risk sentiment and instability in the Treasury bond market amid falling energy prices hinder the growth of the US dollar. Such a decline is facilitated by "marking time" on the Fed's part, as the market won back the upcoming rate hike. Further action by the Fed will determine US consumer price reports.
The current situation contributes to the slowdown in the dynamics of the EUR/USD pair. The pair is trading in the same range, stagnating while expecting the US macro statistics. On Thursday morning, the EUR/USD pair was near the level of 1.1425.
Analysts said that the EUR/USD pair has hardly moved since the beginning of this week, remaining in a narrow range. At the same time, it corrected below the level of 1.1400, reaching 1.1397, and then returned to 1.1420-1.1425. This was facilitated by the US dollar's weakening, which experts believe will last for some time.
In addition to the Fed's intervention, the dynamics of the EUR/USD pair are influenced by the comments of the European regulator. ECB's "hawkish" statements may send the pair to the range of 1.1460-1.1480.
Many analysts expect the US dollar to further plunge against the euro and other world currencies this year. Specialists believe that the USD is overbought, so its price turned out to be "inflated" at the end of 2021. However, some market participants do not agree with this position and are waiting for the US dollar to grow amid the tightening of the Fed's monetary policy, but a fourfold rate hike is unlikely to strengthen the US currency. The regulator will not increase the number of rate hikes (up to seven times, as previously reported) in 2022, as this will lead to a collapse in the US stock market.
The majority of analysts are betting on the euro's appreciation this year. However, there are pitfalls here. Economists predict the euro to decline by the end of 2022, although it is currently strengthening against the US dollar. An interest rate increase by the ECB does not cancel out the negative scenario for the euro, the further growth of which remains in question. The difference in approaches to the monetary policy of the ECB and the Fed also adds pressure. Experts concluded that the current situation is in favor of the US dollar.
