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23.02.2021 02:24 PM
US dollar has slowed down its decline

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The US dollar slowed down its decline a bit this week and was grouped before Fed's Chairman, Jerome Powell, make a speech today. Experts highlighted that the national currency plunged to the low of the previous six weeks recently.

The trading day began with the US currency holding its balance, almost unchanged against the European one. By midday, the EUR/USD pair gained 0.2%, reaching the level of 1.2174. And although it slightly fell afterwards, it still tried to maintain its previous positions. Unfortunately, their effort did not bring success. At the moment, the EUR/USD pair is moving around the range of 1.2147-1.2148, making an attempt to go back to its previous range.

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The prolonged weakness of the dollar brought advantage to the euro, which reached a one-week high of 1.2170 yesterday. The Euro currency received strong support from the surge of optimism that swept the German economy. According to experts, the growing business optimism in the Eurozone helped the euro to move up. In this respect, the rising Ifo business sentiment index offered great support: it rose from the previous 90.3 to 92.4.

At the same, the confidence indicator in German business community also helped the Euro currency to strengthen, which is leading against the dollar for the past three weeks. However, analysts say that euro's growth is only minimal if we compare it to other world currencies. There is also one problem – investors' position towards the ECB, for which the strengthening of the single currency is unprofitable. At the same time, the regulator also focuses on the growth of profitability in the Eurozone.

Jerome Powell's speech is considered to be one of the most important events this week. Here, he is expected to summarize the half-year results and analyze the current state of the economy and monetary policy. According to experts, the widespread decline in the USD means that investors are waiting for the Fed's head to make cautious comments. Analysts are sure that the Central Bank doesn't need to adjust its current policy, especially amid the increasing government bond yields.

Currently, it is more profitable for the Fed to maintain a stimulating monetary policy, as the increase in the yield of the US government debt tightens financial conditions in view of rising rates on mortgage and consumer loans. In his previous speech, J. Powell emphasized that a surge in inflation is only temporary, and the possible price growth will be insignificant. So, he intends to keep interest rates at near-zero levels until the target 2% inflation rate and full employment of the Americans is reached.

Analysts believe that Fed's "dovish" rhetoric will add more pressure on the US dollar, which is already under pressure from past traumatic events. A day earlier, the national currency continued to decline amid expectations of a global economic recovery, and has now taken a break. However, we are uncertain how long will this extend. Specialists are certain that the US dollar will further decline, so it is advised to sell it. To sum it up, the global economic recovery will push the dollar down due to the growth in demand for risky assets.

Larisa Kolesnikova,
Analytical expert of InstaForex
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