The greenback traditionally acts as a more reliable asset, so uncertainty serves as a support factor for it. The Federal Reserve's rate hike also supports the US currency.
The dollar was growing for the third consecutive session on Thursday, returning to the levels of four weeks ago.
Currently, the USD index is adding about 0.9%, trading around 107.40 points.
Investors continue to win back the minutes published the day before from the July Fed meeting.
Recall that in July, the central bank raised the interest rate range by 75 bps, at a record pace since 1994, to 2.25-2.5%.
At the same time, many members of the Fed noted that they are afraid of the risks of excessive tightening of monetary policy, and allowed a slowdown in the pace of rate hikes in the future.
They also expressed concern that the period of increased inflation could be prolonged if the public doubts the central bank's determination to raise the rate to a level sufficient to curb the growth of consumer prices.
"The intended message was much more subtle and reflected the need for optionality on the part of the central bank trying to assess conflicting economic data," BlackRock strategists noted.
In order for the Fed to reduce its rate hikes, the inflation reports, which are due to be released before the next meeting, will probably need to confirm that the pace of price growth is declining. Inflation by the preferred indicator is more than three times higher than the central bank's target of 2%.
Data released after the FOMC meeting in July showed that annual consumer inflation fell last month to 8.5% from 9.1% in June, which suggests a smaller rate hike of 50 basis points next month.
However, US retail sales, which are most closely related to the consumer spending component of gross domestic product, were stronger than expected in July.
The growth in the number of jobs and wages last month also exceeded expectations.
Meanwhile, the Chicago Fed's credit, leverage and risk index showed continued weakening. This poses a dilemma for Fed policymakers who believe that tougher financial conditions are needed to contain inflation.
The European Central Bank is having an even harder time, as the Russian-Ukrainian conflict has led to problems with natural gas supplies, which increases the likelihood of a recession in the eurozone.
The economic growth of the currency bloc in the second quarter was slightly less stable than previously forecast, revised data from the European Statistical Office showed.
The day before, the agency reported that the gross domestic product in 19 countries using the euro increased by 0.6% compared to the previous quarter in April-June and expanded by 3.9% year-on-year. Previously, the management estimated quarterly growth at 0.7%, and an annualized rise of 4.0%.
"GDP figures paint a flattering picture of growth dynamics in the first half of 2022," Oxford Economics analysts said.
However, analysts warn that growth in the second quarter could be the economy's last spurt before ever-rising inflation and supply chain problems trigger a moderate recession over the next 12 months.
On Thursday, Eurostat confirmed the estimate for annual inflation in the eurozone in July at 8.9%. The indicator again became a record, in June inflation was 8.6%. In July alone, consumer prices in the currency bloc, according to the final estimate, increased by 0.1%, as expected.
According to Isabelle Schnabel, a member of the ECB's Governing Council, the prospects for inflation in the region have not improved after the central bank raised the rate by 50 basis points in July. This means that she will vote for another significant interest rate hike next month, even though the risk of recession is increasing.
"In July, we decided to raise rates by 50 basis points because we were concerned about the prospects for inflation. The concerns we had in July have not been eliminated. I don't think that this worldview has radically changed," Schnabel said.
As inflationary pressures in the eurozone appear to be intensifying, money markets are now forecasting an ECB rate hike of 55 basis points in September and a cumulative rise of 118 basis points by the end of the year.
At the same time, the ECB is unlikely to be able to raise interest rates as sharply as its American counterpart.
The difficulty for the ECB is that its rate hike is taking place just at the moment when a recession is looming over the currency bloc, caused by a sharp rise in energy prices. Tightening monetary policy when entering a recession risks exacerbating any economic downturn.
Another complication is that raising rates in the eurozone will inevitably lead to a disproportionate increase in the cost of borrowing on the periphery of the bloc, exposing countries with high debt levels, such as Italy or Greece, to greater risk.
As for the Fed, according to some experts, the central bank will have to raise the rate to more than 4%, and maybe up to 5%, in order to steadily reduce inflation to the target of 2%.
In this scenario, the dollar will remain in a strong position against the euro for a long time.
The United States just published data on initial applications for unemployment benefits for the week ending August 12. The indicator decreased more than predicted, to 250,000.
A separate report reflected that in August, the Philadelphia Federal Reserve's index of business activity in the manufacturing sector rose to 6.2 points compared to -12.3 points in July and against the expected -5.0 points.
Positive data on the US supported the dollar, which rose on a broad front.
Amid the widespread strengthening of the greenback, the EUR/USD pair reached its lowest values since July 15, plunging below 1.0100.
Danske Bank expects to see the euro exchange rate against the dollar at $0.99 in one month, at $0.98 in three months and at $0.95 in twelve months.
"A strong negative trade shock for Europe compared to the United States, further cyclical weakening of trading partners, coordinated tightening of global financial conditions, strengthening of the dollar and downside risks for the eurozone economy make us expect that the EUR/USD pair will continue to decline (the target is 0.9500)," the bank's strategists noted.
"The main risk for the EUR/USD shift in the direction of 1.1500 is the weakening of global inflationary pressure and the growth of industrial production. However, the definition of inflation as "temporary" has largely lost credibility, and European industrial production remains weak. This will continue as the PMI index for the eurozone manufacturing sector has fallen below the 50 mark. Upward risks also include renewed attention to China's credit policy easing and global capital investment growth, but neither of these seems to be materializing at the moment," they added.
