The US currency temporarily retreated, but later made up for lost time, demonstrating multidirectional dynamics by the end of the week. Some fluctuations in the USD occurred after the release of the minutes of the Federal Open Market Committee (FOMC).
The greenback's attempts to look beyond the horizon, going beyond what is happening, contributed to its subsidence. In the future, the dollar regained its losses, as they were short-term. At the same time, the European currency also did not get a head start. As a result, the EUR/USD pair was in limbo. On Wednesday, May 25, the single currency rose to a high at 1.0748. At the same time, experts consider the upward momentum of the EUR unstable. Earlier, analysts said that the euro was overbought, which did the latter a disservice.
As a result, the European currency briefly soared, and then returned to a moderately downward trend. Subsequently, the euro settled and returned to the range of 1.0670-1.0750. On the morning of Thursday, May 26, the EUR/USD pair was trading near 1.0680, almost without going beyond these limits.
According to Commerzbank's currency strategists, the single currency is unlikely to continue to grow, although the bottom at the level of 1.0400 has already been passed. The euro, unlike the greenback, does not have sufficient resources for a systematic recovery. Even the hawkish sentiments of the European Central Bank did not correct the situation. Commerzbank does not rule out that the current ECB course aimed at tightening the monetary policy may change: "There are economic uncertainties and risks in the eurozone that could force the ECB to act more cautiously, for example, in the event of an energy crisis. In such a situation, the euro will not be able to grow further, especially after the market has significantly adjusted its expectations for rates."
On the issue of increasing interest rates, the dollar remains the leader. Despite the last FOMC meeting and the central bank's clearly stated position on pressing issues, the USD fluctuated near a monthly low. Experts explain such dynamics of the greenback by the coincidence of market expectations with the actions of the Fed. In the current situation, the dollar is still a safe haven currency, benefiting from an improvement in risk appetite.
The US currency was supported by the results of the last FOMC meeting. The participants of the May meeting were unanimous on the issue of raising the key rate by 50 basis points (bp) at the central bank's next meetings (scheduled in June and July). Representatives of the FOMC published the minutes of the Fed meeting, according to which the central bank raised rates by the expected 50 bps (up to 1.0%) and announced the strengthening of the quantitative tightening program, which starts in June.
All participants of the meeting agreed on the need to increase the interest rate by 50 bps, considering it appropriate. Many of them drew attention to the huge potential of the American economy, despite the struggle with sky-high inflation. Representatives of the FOMC stressed the importance of combating unemployment, noting the high demand in the labor market in the United States.
Officials supported the current plans to reduce the Fed balance. The problems of inflation in the country were honored with a separate conversation. Representatives of the central bank are ready to carefully monitor the situation in order to prevent an increase in inflationary risks, which are directed upward.
The current situation puts pressure on the US currency. On the one hand, the dollar is teetering over the abyss, and on the other, it gets an impulse for further growth. At the same time, the greenback's attempts to look beyond the event horizon are unproductive, and the relative balance in the EUR/USD pair allows us to count on a positive trend.
