The key news for the US dollar - data on inflation in the United States - has been released, and the market response is underway. In theory, a rise in inflation in September should have spurred further gains in the US currency as higher consumer prices increase the chances of US monetary policy tightening by the Fed. Apparently, this was not enough. The consumer price index grew by only a tenth of a percentage point, while core inflation remained unchanged. Thus, the news can hardly be a reason for further strengthening of the US dollar.

Interestingly, the US currency has traded in the opposite direction lately. In other words, the dollar gained in value despite rather negative statistics. The current situation is different. Perhaps this movement speaks of the return of major players who prefer to go long on the euro.

Today, the EUR/USD pair has returned above 1.16, which means that the growth of the quote is likely to accelerate in the short term.

The dollar's decline may also be attributed to expectations of a change in interest rates. The reason for such optimism is still unclear, but market participants expect a 25-bp interest rate hike at the meeting scheduled for September 2022. The economic situation in the United States is uncertain. As noted by the Fed, its deterioration is due to a new wave of the coronavirus pandemic. Is it true? In the first quarter of this year, the economy expanded by 6.4% per annum even amid the worsening epidemiological situation.

The crisis in economic growth is most likely caused by the phase-out of stimulus measures, and this slowdown will persist until the new package of measures is unveiled. This means that in the fourth quarter, GDP growth will be weak as well. Will the regulator tighten monetary policy under such conditions? Not likely. Investors' postponed expectations of interest rate hikes may exert downward pressure on the dollar.

Will the dollar lose in value?

Judging by the last quarter, the dollar is rather strong. Favorable liquidity conditions and risk sentiment failed to weaken the greenback in the third quarter. Now fundamental factors may turn out to be less favorable, so why is the dollar expected to fall?

Last quarter, the Fed made dovish comments at the symposium in Jackson Hole. Fed Chair Jerome Powell stubbornly argued that inflation would be temporary.

In the fourth quarter, the market is likely to interpret the Fed's statements differently. The head of the regulator and his colleagues have not yet changed their idea of a gradual phase-out of support measures. However, to do this, the situation in the labor market must stabilize. The coronavirus affected market sentiment in the third quarter. Therefore, it is difficult to make forecasts amid the uncontrolled spread of coronavirus, and yet ...

The Fed may still surprise investors. Regulator members may wait for the November meeting to push for tougher policy compared to the market expectations in the fourth quarter.

According to the CFTC, US dollar positioning has been net long for 12 straight weeks and has already hit a 2-year high. Notably, the volume of long positions began to increase after the release of the US inflation rate for June. The dollar confidently turned upwards and the US dollar index no longer fell below the 90.00 mark.

Market sentiment is mainly based on a possible phase-out of stimulus programs in November. However, it is quite possible that investors overestimate the Fed's capabilities and their expectations will not be met. Aggressive bets on the dollar's rise in the medium term will not bear fruit either. In this case, the US dollar will come under pressure.

Judging by gold positioning, the greenback is resisting the downtrend. The precious metal continues to trade in a fairly narrow range around the $1,750 mark per troy ounce. Its attempts to grow, as well as to fall, are unsuccessful. Nevertheless, the asset still has a chance to get out of the range. If the price consolidates above $1,800 per ounce, a bearish trend reversal signal will appear. The new trend will be confirmed if the price overcomes its previous local high of 1,836.

It can be seen that the US dollar does not want to give up. However, its bullish momentum seems to be slowly fading away. Thus, a correction the EUR/USD pair has been going through since the beginning of the summer, is coming to an end. It is important to understand that the current rally in the euro is not due to the strength of the euro itself but to the weakness of the dollar.

Nevertheless, the weakness of the US dollar index is likely to be temporary. Therefore, it may well rise above the level of 94.00 in the near future.