The US dollar started the week with a mixed dynamic. Nevertheless, its upward correction is unfolding rather steadily. It means that the greenback may resume a long-term bull run. Yet, it dropped against the euro but recovered later.
The last trading week of April began with a slight rise amid market expectations of another rate hike by the Fed. They hope to get more hints about the possible end of the tightening cycle – the most aggressive one in recent years.
The next meeting of the regulator is scheduled for May 2-3. The majority of investors (88.6%) have factored in another rate increase of 0.25% from the current range of 4.75-5%. However, some traders are confident that the Fed will keep the interest rate at the same level at the next meeting. However, analysts assume that in the summer the Fed will complete the tightening cycle that started in 2022.
Hence, it is difficult for the US currency to maintain a bullish momentum versus EUR. Nevertheless, the US made an attempt to consolidate at recent highs. On April 24, the EUR/USD pair was trading at 1.0980 although it had previously been hovering around 1.0990.
Analysts at Deutsche Bank believe that by the end of 2023, the pair may reach 1.1500. However, in case of rate cuts by the Fed, the EUR/USD pair could rise to 1.2000. The bank expects such a scenario in 2024. Yet, the regulator is unlikely to ease monetary policy in the short term.
Besides, speculators have also factored in the likelihood of new rate increases by the ECB. The regulator will hardly abandon its hawkish stance despite the fact that the Fed may cut rates at the end of this year.
The ECB is expected to raise the interest rate by 75 basis points. One of ECB policymakers said that the central bank will remain committed to tightening until the end of this year. Earlier, Christine Lagarde stressed that inflation in the eurozone is still too high and the regulator "has a short way to go on rates" to tame inflation. Market participants were not surprised by her statements. This is why drops in the EUR/ USD pair will not last long.
Discrepancies in monetary policy expectations between the ECB and the Fed may adversely affect the pair and lead to another breakout of 1.1035. After that, the pair could reach the pivot level of 1.1175. It has been the support level from November 2021 to January 22, 2023. since March 27 this year, it has been acting as the resistance level. At the same time, experts believe that concerns about US macroeconomic indicators will limit the upward potential of stocks in the long term.
Despite the relatively positive economic reports, recession fears persist. Fresh macro stats increased expectations of a 50 basis point rate cut by December 2023. According to forecasts, market participants anticipate more rate cuts during 2024.
However, some investors are not so optimistic. Earlier, the regulator noted that it has room for further tightening. It triggered a rebound in the US dollar last week. Traders expected to see a sharp rise. However, it did not happen.
Expectations of a rate increase at the May meeting increased after the hawkish statements of some Fed policymakers. Against this background, market participants predict a policy reversal by the end of 2023. The current situation turned out to be favorable for the greenback. As a result, it showed its first weekly growth in the last two months. It may start a rally against the euro.
