On Monday, the euro has found an opportunity to come on top against the US dollar, which has retreated amid prospective de-dollarization measures by several other countries.
Russia's demand for EU nations to pay for Russian gas in rubles is likely to be detrimental to USD's price dynamics in the medium and long term, analysts note. Furthermore, possible de-dollarization measures in the Asia-Pacific region could also weaken the US dollar. Russia, China, and India could potentially conduct trade using their national currencies instead of USD.
EUR's price dynamics has been negatively impacted by Moscow's demand - over the past several days, the European currency struggled to keep afloat. The euro rallied afterwards, with EUR/USD trading at 1.0878 early on Monday. The US dollar slumped against the euro, as traders await the meetings of the Federal Reserve and the ECB.
Over the past few weeks, USD has risen against EUR on aggressively hawkish Fed policy. Now, the euro has got a head-start amid a possible ECB policy review. The European regulator has followed a very dovish monetary policy compared to its US counterpart - it is also expected to keep the interest rate at 0% at its May meeting. However, the ECB could increase the rate in Q3 2022.
The euro has found significant support in the results of the first round of French presidential elections. The incumbent president Emmanuel Macron received 27.84% of the vote. Marine Le Pen of the far-right National Rally party came in second with 23.15% of the vote, while the candidate of the far-left La France Insoumise party Jean-Luc Melenchon got 21.95% of the vote. An election victory of Macron could boost the euro in the medium term.
The European currency is advancing amid a US dollar slump, which is fueled by speculation about the possible end of dollar dominance in the near future. An adoption of other currencies for trade by other countries could invalidate the US dollar's global reserve currency status, the Financial Times reported. "The death of the dollar has been predicted on countless occasions before, only for the US currency to maintain its position. Inertia is a powerful force in cross-border finance: once a currency is widely used, that becomes a self-perpetuating position. But if there is a steady shift away from the dollar in the coming years, the sanctions on Russia's central bank might come to be seen not as a bold, new way of exerting pressure on an opponent but the moment when the dollar's dominance began to decline — a financial Suez Canal," FT noted.
The US currency's recent advance has begun amid the Fed's statements that it would reduce the balance sheet by $95 billion per month. The regulator's hawkish position boosted expectations of aggressive monetary tightening, pushing USD up. Most analysts see the Fed increase the interest rate to 0.75-1% per annum.
Furthermore, investors are certain that the US central bank would hike the rate 3 times by 50 basis points. Earlier, this scenario seemed unlikely. Analysts expect the biggest increases to occur in the next two quarters of 2022, with consecutive hikes by 25 basis points afterwards. The Fed is likely to keep increasing the rate until it reaches 3.00-3.25% around March 2023, On April 8, the US dollar index surpassed 100 points for the first time since May 2020 on monetary tightening expectations. USD could possibly recover and overtake EUR in the short term.
