The US currency has once again received support from the Fed's aggressive monetary strategy. This allowed the greenback to bypass the euro by playing on the difference in monetary policy between both central banks. At the same time, the euro gathered its own strength to win back some of its positions from the greenback.
Experts consider the expectations of the markets for an increase in the discount rate by the Federal Reserve to be a key factor in strengthening the greenback. According to preliminary forecasts, this will happen next month. Analysts are concerned about the question: will the American economy maintain its upward momentum during multiple increases in the key rate? Many experts doubt this, fearing that even an increase of 50 bp will not stop the price increase.
The so-called "black swans" - the Russian-Ukrainian conflict and the tightening of quarantine in China associated with a new outbreak of COVID-19 - have become powerful drivers of current inflation. Against this background, many analysts came to the conclusion that the Fed was a little late with the tightening of the monetary policy. The central bank should have caught on earlier, when it was quite possible to stop the growth of inflation.
At a recent FOMC meeting, it was decided to limit the pace of purchases of government bonds worth $95 billion per month. Many analysts interpreted such actions as a more aggressive policy of the Fed compared to other central banks. Some economists are confident that such a strategy will bear fruit in the near future. However, skeptics disagree with this. According to Larry Summers, a Harvard economist and former US Treasury secretary, the Fed's attempts to ensure a soft landing of the economy are "illusory" and often ineffective.
However, cautious and not too positive forecasts do not interfere with the growth of the USD, which is still in high demand amid falling risk appetite. Earlier this week, the greenback managed to return to two-year highs, which cannot be said about the weakening euro. The latter is in many ways inferior to the greenback, barely holding on to the positions won. On the morning of Tuesday, April 19, the EUR/USD pair was trading at 1.0772, trying to settle in the existing range.
According to experts, the current situation in the financial markets is not in favor of the euro. The European Central Bank's decision to maintain the existing parameters of the monetary policy forced investors to put into prices a discrepancy in the monetary strategies of the ECB and the Fed. As a result, the EUR/USD pair fell to an extremely low level of 1.0757. In the future, thanks to the technical correction, the pair recovered. However, the increasing divergence between the leading central banks puts pressure on the EUR/USD pair. According to analysts, the pair is able to roll back to the 2020 lows near the 1.0636 mark, which is the next support level.
The growing yield of US Treasury bonds and the withdrawal of investors from risk reduce the chances for the euro to attract bulls. The prolonged Russian-Ukrainian conflict adds fuel to the fire, against which the euro's appeal has decreased significantly.
Market participants are playing back the recent hawkish comments of the Fed, which have become the driver of the recent growth in the yield of treasuries and USD. The Fed's statements contrast sharply with similar actions of the ECB, which disappointed those market players who expected a transition to a more aggressive policy.
According to experts, this week the rhetoric of the Fed and the ECB "rules the ball" in the market. The actions of the leading central banks are a fundamental driver for the EUR/USD pair. Recall that the next meetings of the Fed and the ECB are scheduled for Thursday, April 21. For the classic pair, the current dynamics of USD in the global market is still relevant.
