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11.10.202223:34 Forex Analysis & Reviews: Potential dollar rally before the end of the week

Exchange Rates 11.10.2022 analysis

The dollar continues the wave of ascent. It surpassed the 113.00 mark on the dollar index. Thus, growth is observed for the fifth consecutive session, but will the greenback have enough arguments not only to keep the height, but also to break through new highs, as analysts predict?

The recent correction has slightly spooked traders who are betting on a further increase in the dollar, as it has gone down a lot. The losses from the highs at 114.7 were over 4%. Since then, 3.1% has been won back, for sure, bulls will be able to return to the previous height, given the weakness of other world currencies.

The euro, although it showed signs of recovery on Tuesday, failed to surprise anyone, and there is nothing to count on yet. Short-term insignificant spikes mean nothing, but the macroeconomic situation and negative expectations, along with a strong dollar, could provoke an even deeper plunge below parity to start at 1.9500.

As for the pound, the picture is ambiguous. Parity with the dollar may be avoided, but a test of historical lows is unlikely.

Volatility jumped again at the end of US trading on Tuesday. The British currency fell sharply, GBP/USD losses exceeded 1%, to the level of 1.0970, a fall against the euro was recorded by a similar amount.

The pound slipped after Bank of England Governor Andrew Bailey said the central bank would end its emergency support for pension companies on Friday, as planned.

"There needs to be a rebalancing, and my message to the funds involved and to all the firms involved in managing these funds is: You have three days left," Bailey said.

The fall of the pound suggests that market players still hoped that it would turn out to be a bluff on the part of the BoE, but in fact it would extend the program, but it did not happen. Traders once again plunged into reality.

Financial risks in the UK appear to be on the rise again.

Exchange Rates 11.10.2022 analysis

ING Bank expects a decisive break below 1.1000 and beyond in the short term. The bears are currently aiming for the 1.0000-1.0500 area. These levels should be worked out before the end of the year.

Meanwhile, the US labor market remains relatively strong, allowing the Federal Reserve to continue tightening monetary policy at a high pace.

It is difficult, or rather impossible, for other major central banks to keep up with the Fed - economic conditions do not allow it. According to the IMF, about two-thirds of the global economy will show negative growth for at least two quarters in a row. We're talking about the end of this year and the beginning of next.

Exchange Rates 11.10.2022 analysis

The growth of Treasury yields continues to support the US currency in the short term. The 2-year yield fell 0.2 bp on Tuesday to 4.302%, while the 10-year yield edged up 5.5 bp to 3.937%. The inversion of the curve in the 2-10 years section decreased to -36.3 bp, and in September the indicator fell below -50 bp. The debt market continues to take into account the risk of a recession in the US in the future 12 months, but the probability has become lower.

On Wednesday, the focus will be on the consumer inflation report. If indicators, in particular core inflation, continue to indicate that prices cannot be brought under control, the dollar will develop a rally. The index may move into the range of 115.00-120.00. Here, the global trend is likely to break.

Natalya Andreeva,
Analytical expert of InstaSpot
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