The US currency will have to decide on the direction in the near future. The market is eagerly awaiting where the dollar is leaning toward – in the direction of weakening or strengthening its position?
Many experts and investors expect the growth of the dollar in the short-term. The potential strengthening of the specified currency is supported by the strengthening of anti-risk sentiment and growing tension among emerging markets and commodity currencies, such as the Cnadian and Australian dollars, etc.
An additional factor in the strengthening of the dollar may be growing concerns about the second wave of the COVID-19 pandemic. According to analysts, it will be difficult for the United States to cope with the pandemic compared to others: the number of cases increases or decreases slightly, while political issues worsen the situation. This situation is shaking the position of the dollar, which, relying on significant financial support from the Fed, is trying to stay afloat.
Bank of America's currency strategists believe in the strength of the USD and its powerful recovery capabilities. Experts are convinced that in the coming months, this currency will fully play back the recent failure caused by the global economic recession. The impulses of the growth of the US currency will be the resumption of demand for safe haven assets, among which the USD is leading, and a gradual economic recovery in the US.
According to Bank of America, the dollar was tripped up by the strong growth of us securities and global financial assets that are sensitive to risk. Additional pressure on the" American " had a short-term strengthening of the Euro - a rival in the EUR/USD pair.
The EUR/USD pair showed significant volatility at the beginning of this week. Against the background of a slight subsidence of the US currency, the European one stepped up, not missing the chance to rise. Experts recorded the correctional recovery of the euro which became the driver of growth in the EUR/USD pair. On Monday, June 29, the pair ran in the range of 1.2235 - 1.2240, and on Tuesday morning, June 30, it started at 1.2233. Later, the EUR/USD pair went to the levels of 1.2228 - 1.2229, and is not rushing to leave this range.
According to experts, the current preponderance of the scales towards the euro in the EUR/USD pair is due to positive macro statistics from Germany. On the first day of the week, there was information about the growth of German inflation, which encouraged the market. One of the key economic markers of Germany - the general consumer price index turned out to be better than expected, which rose to 0.6% in monthly terms and it also accelerated to 0.9% in annual terms. This is the strongest result since April 2019.
Another positive result for the German economy, which was not recorded for more than a year, was the harmonized consumer price index, which overcame the zero bar for the month. When calculating for the year, this indicator increased to 0.8%, updating the highs of the end of winter in 2020. According to preliminary estimates, the German economy has a good chance of a V-shaped recovery. It can be noted that this option of economic growth is the most preferable.
In the current situation, the US currency will have to work hard to overcome a number of barriers to strengthening. It may be supported by increased demand from investors and their withdrawal into the safe haven assets. However, investors are at a crossroads now: on the one hand, macroeconomic reports for Europe and America indicate a gradual recovery of economies, and on the other, outbreaks of new outbreaks of COVID-19 in the United States increase the fear of a new pandemic wave. The state between the rock and the hard place does not add optimism to the market, therefore, investors are cautious in their decisions and often take a wait-and-see attitude.
Many analysts agree that the US currency will strengthen in the short and medium-term. This is facilitated by an increase in anti-risk sentiment, increased pressure on the currencies of developing countries, and constant tension over the surge in the second wave of COVID-19. Experts expect that the balance will lean in favor of the dollar, which will gain a foothold in the status of the undisputed market leader.
