The US currency is full of energy, which it has shown during the rise in the EUR/USD pair. However, experts do not exclude that the European currency will be able to outperform its competitor, but only in a short run.
According to experts, at the moment the greenback is one of the most reliable assets that have confirmed the status of a safe-haven currency. The US currency was near a weekly high on Tuesday, August 16, while many key currencies remained under pressure. The reason is the deterioration of global economic data, which increased the risks of a recession.
Against this backdrop, the euro rate against the dollar reached six-week highs, exceeding the psychologically important milestone of 1.0200. The euro traded above the indicated level at the beginning of this week, but then fell to the critical 1.0157. The EUR/USD pair showed the effects of a collapse on Tuesday morning, August 16, hovering near 1.0160 amid strong USD buying pressure.
According to analysts, in the near future the single currency will be supported by the weakening of the greenback and the easing of China's monetary policy. Earlier, the euro strengthened to its highest level in the last month, soaring after the release of data from the US Bureau of Labor Statistics. The reason is the likelihood of lower inflationary pressures.
However, many experts are pessimistic about the medium and long-term prospects for the euro. Currency strategists are sure that the trend towards the weakening of the single currency will last until the end of 2022 - the beginning of 2023. Fueling the fire are fears of a recession as Germany's energy crisis deepens. The specialists expect a long downward trend in EUR due to energy problems and economic disunity in the euro bloc countries. According to forecasts, in the short term, the EUR/USD pair will head towards 0.9600. Experts also allow the euro to stagnate against other world currencies.
However, the single currency's chances to win back will increase if the European Central Bank raises the key rate by 50 bps at the September meeting. In such a situation, a short-term rise in the euro in the range of 1.0400-1.0500 is possible. The euro will be supported by the reduction of interest rates by the People's Bank of China (PBOC). This measure will be aimed at strengthening the national economy, experts emphasize. Recall that on Monday, August 15, the market faced disappointing statistics on business activity in China, which included industrial production, retail sales and investment in fixed assets. Against this background, investors preferred to invest in the dollar, saving their capital due to increased concerns about the growth of the global economy.
The mass exodus of markets in USD is also due to the expectation of the release of the minutes of the FOMC meeting, scheduled for Wednesday, August 17th. According to analysts, the document may contain information demonstrating the Federal Reserve's intentions regarding future rate hikes. This minutes is able to influence the market assessment of the September Fed rate hike, which will ultimately affect the greenback's dynamics.
In a recent Fed speech, it was noted that "a significant change in interest rate policy" is still far away. However, such changes are not far off, Barclays economists believe. The bank's specialists adhere to the current forecast for the interest rate, which provides that the central bank will increase it by 50 bps in September, and in November and December 2022 it will be reduced to 25 bps. The current minutes of the Fed's meeting, due out on Wednesday, will be a turning point for determining the near-term outlook for the market amid uncertainty about monetary policy and how to fight inflation further.