USD is steadily gaining momentum at the beginning of a new week ahead of the FOMC meeting, which is not the case with the euro. The single currency's growth has been replaced by some form of stagnation, but some progress in its dynamics is evident. Nevertheless, the dollar is still the market leader, able to conquer new heights.
The greenback went up against other world currencies, especially against the euro, on Monday morning, December 12, as investors await the Federal Reserve's rate decision. Moreover, data on the U.S. inflation rate will be released on Tuesday, December 13.
According to preliminary forecasts, the annual growth of consumer prices in the country slowed down to 7.3% in November from the previous 7.7%. According to analysts, the figure may show a decline for the fifth consecutive time (from a peak of 9%), but remains above the 2% target. Against this backdrop, the U.S. currency rose substantially as inflationary pressures remain in place. On Monday morning, December 12, EUR/USD was trading at 1.0530, trying to move beyond its current range.
The focus is on the Fed's next meeting, which is scheduled for December 13-14. Investors expect the central bank to decide on the key rate and discuss new macroeconomic indicators. Traders and investors will continue to follow the signals coming from the Fed, which may suggest the central bank's future course of action.
Rabobank's currency strategists anticipating the December FOMC meeting said they expect the U.S. central bank to raise the key rate by 50 basis points and revise its earlier forecast to 5%. Thus, the majority of experts count on a slowdown of the rate hikes (by 50 bps to 4.25-4.5% per annum) amid strong macro data. Rabobank believes that in the coming year Fed Chairman Jerome Powell will oppose a rate cut, as "it is likely that restoring price stability will require holding policy at a restrictive level for some time,".
According to a number of analysts, in the coming months the greenback will rise against most of the world's currencies, particularly the euro. The threat of recession in the U.S. and other countries as well as mass capital outflow to safe-haven currencies contributes to this. At the same time, many experts think that the dollar does not have enough room to grow. The risk of economic slowdown and renewed inflationary pressure are preventing the greenback from spreading its wings, analysts say.
Despite the short-term depreciation of the dollar recorded last week, many key currencies retain their high positions. According to experts, most of them will recover by the end of 2022, and this trend will continue in 2023. First of all, it concerns the euro which rose in value by 10% against the American one. At the same time, the single currency is still trading 8% lower than at the beginning of this year. Analysts expect the euro to fall by 3% to 1.0200 by the end of February 2023, but a year later the pair EUR/USD will be able to catch up and rise to 1.0700.
Recall that on Wednesday, December 15, two major central banks - the European Central Bank and the Bank of England are scheduled to meet. According to the specialists, both regulators are ready to raise the rates by 50 bps, up to 3,5% and 2,5% respectively. Earlier the central banks raised their key rates by 75 bps.
According to currency strategists, the USD will remain among the leading safe haven assets next year and its price will continue to rise. According to Bank of America analysts' forecasts, in early 2023, "the dollar will remain strong." However, the greenback expects a gradual decline thereafter, after the Fed pauses to raise rates. At the same time, the decline in inflation could slow down, so the USD would be supported for a long time, Bank of America said.
