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12.09.202208:27 Форекс анализи и прегледи: EUR/USD: price tug of war continues

Exchange Rates 12.09.2022 analysis

The US and European currencies remain in the stage of confrontation, intensely competing with each other. However, the euro often loses in this race, periodically losing to the stronger dollar. Against this background, analysts expect parity in the EUR/USD pair to be maintained in the short and medium term planning horizons.

The euro jumped at the beginning of the new week, rising slightly thanks to the European Central Bank's hawkish signals. The euro reached a three-week high against the US currency, as representatives of the ECB decided to stick to an aggressive tightening of monetary policy.

Recall that following the results of the next meeting, the ECB raised its key rate to a record 75 bps. These are quite decisive actions taken after the July rate hike by 50 bps, etc. Such a move was included in the debt market quotes, so it did not come as a surprise. According to analysts, the hawkish tone of the central bank provided significant support to the single currency, although this did not save it from another fall below the parity level. The EUR/USD pair was trading at 1.0088 on Monday morning, September 12, partly recouping previous losses.

Exchange Rates 12.09.2022 analysis

According to ECB President Christine Lagarde, "a weak euro spurs inflation." Against this background, more drastic steps in the process of raising the rate are acceptable in the near future. Representatives of the central bank also noted that its next rises are possible at the next five meetings. In addition, the next two official events will end with an increase in rates, according to the department.

Against this background, the US currency plunged slightly against the European one in anticipation of reports on the US inflation rate (CPI). On Tuesday, September 13, markets will focus on data on annual US inflation. According to preliminary forecasts, in August, the growth of consumer prices in the United States will show a slowdown for the second consecutive month (from the current 8.5% to 8.1%). At the same time, investors and traders expect that in September the Federal Reserve will raise the discount rate by another 75 bps. This opinion is held by 90% of analysts, and the remaining 10% expect a rate increase to 50 bps.

Some experts consider the deterioration of the August CPI indicators in the United States to be one of the potential risks of a decline in the greenback. According to analysts, another weak macroeconomic report casts doubt on market expectations for a third consecutive rate hike of 75 bps. However, some experts are optimistic. Wells Fargo currency strategists believe that despite the aggressive pace of tightening of the monetary policy by a number of central banks, the Fed will remain the leader in this matter. Against this background, it is quite possible to strengthen the USD until the end of 2022, analysts say.

A similar position is held by Larry Summers, a former US Treasury Secretary and current professor at Harvard University. He believes that the greenback has excellent chances for further strengthening. At the same time, the specialist takes into account a number of fundamental factors contributing to the growth of the latter. According to Summers, America has a "huge advantage": it does not depend on "extremely expensive foreign energy carriers." An additional advantage is the fact that the Fed is moving towards tightening monetary policy faster than other central banks. "This allows the dollar to remain a safe haven currency, and the United States - a Mecca for capital. As a result, all the financial resources of the world flow into USD," Summers sums up. In such a situation, many experts expect the greenback to strengthen in the medium and long term.

Larisa Kolesnikova,
Analytical expert of InstaSpot
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