The US currency ended last week on a positive note.
Last Friday, the greenback rose sharply against its main competitors as the Federal Reserve announced its decision not to extend the March 31 deadline for US banks to hold additional liquidity in the form of treasury bonds on their balance sheets.
This means that financial institutions will need to sell excess debt instruments in order to meet the solvency ratios set by the central bank.
According to analysts, this decision may lead to an even greater increase in the yield of treasuries.
Last week, the indicator for 10-year US government bonds jumped to 1.753%, reaching the highest values since January 2020.
According to Thomas Barkin, head of the Federal Reserve Bank of Richmond, the yield is responding to what is happening with the US economy, as well as to good news on the topic of vaccination and fiscal stimulus in the country.
In light of the recent $1.9 trillion support package, he expects that the US economy has already recovered the lion's share of the drawdown and is on the verge of a full recovery.
According to the Fed's forecast, US GDP will expand by 6.5% this year, which will be the largest annual increase since 1984.
The sharp jump in the yield of treasuries and the accompanying strengthening of the dollar forced major speculators, including hedge funds, to reconsider their attitude to the US currency and turn around significantly: now, for the first time since November 2020, they are betting on the growth of the USD.
If at the end of last year, the greenback fell by about 7%, showing the worst dynamics since 2017, then since the beginning of this year, it has already gained about 2.5% in weight.
At the opening of the week, the USD index was trading near almost two-week highs (around 91.16 points), but then corrected to 91.8 points.
The market mood was worsened by news from Turkey, where President Recep Tayyip Erdogan fired the central bank governor, which led to a fall in the lira and increased demand for a safe dollar. However, the situation later stabilized.
After an initial drawdown to 1.1880, the EUR/USD pair then recovered, rising above 1.1930.
Rabobank analysts believe that the main currency pair on the short-term horizon retains the growth potential to the level of 1.2000, but in the longer term it will trade around 1.1800.
"Given the fact that the Fed will successfully contain inflation fears and the growth of treasury yields, the EUR/USD pair may break through to 1.2000 in the coming weeks. However, expectations of a stronger recovery in the US economy this year, against the backdrop of disappointing rates of mass vaccination against COVID-19 in Europe, forced us to lower our 12-month forecast for the pair from 1,2300 to 1,1800," they said.
"The confirmation by the European Medicines Agency (EMA) that the AstraZeneca vaccine is safe should give a boost to the vaccination campaign in the euro area. At the same time, a possible reluctance to be vaccinated with this vaccine could hit the vaccination campaign even harder, adding to supply disruptions with demand problems," Barclays experts said.
Confidence in the safety of the COVID-19 vaccine developed by the pharmaceutical company AstraZeneca has been particularly shaken in Spain, Germany, France and Italy, according to a recent Reuters poll.
Against the background of reports of detectable complications after vaccination, 55% of Germans and 61% of the French do not now consider the AstraZeneca vaccine safe.
If earlier in Italy and Spain the vaccine was considered safe by 54% and 59%, respectively, now these figures have fallen to 36% and 38%.
An increase in the number of coronavirus cases in Germany has prompted Chancellor Angela Merkel to extend nationwide isolation. Europe's largest economy will join France, which has already imposed new restrictions on 20 million citizens. Quarantine has also been introduced in most of Italy.
"A new outbreak of COVID-19 in most of the eurozone member countries may delay the easing of quarantine restrictions for a month, until the second half of April, and thus affect the recovery of the region's economy," analysts at Berenberg Bank believe.
Currently, the 200-day moving average in the area of 1.1845-1.1850 limits the fall of the EUR/USD pair. Below, support is located at 1.1800 and 1.1750.
Meanwhile, the pair needs to settle above 1.1970 to give the bulls a chance. Further resistance is marked at 1.2010 and 1.2050.
