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12.08.202208:42 Forex Analysis & Reviews: EUR/USD: dollar resists the pressure of the Federal Reserve, and the euro remains optimistic

At the end of the week, the US currency experienced a series of declines and rises, while losing some of its gains. At the moment, luck favors the euro more. The euro is steadily strengthening amid impressive macroeconomic reports from the United States, which demonstrate an increase in inflation in the country, although sometimes it retreats from current levels.

The US currency declined slightly on Thursday, August 11, after the previous 1% decline on Wednesday, thus reacting to the inflation rate in the US. At the same time, experts noted that inflation in the country was not as high as previously expected. This situation prompted market participants to reconsider their previous expectations about the Federal Reserve's rate hike.

The greenback continued to fall in the face of this, remaining in a downward spiral after the release of the report on producer prices in the United States. According to current data, this indicator significantly decreased in July compared to the previous month. At the same time, the number of applications for unemployment benefits in the United States turned out to be less than economists expected, and producer prices declined in annual terms. According to analysts, this indicates a significant decrease in inflation.

According to the US Department of Labor, a key indicator of industrial prices in the country unexpectedly collapsed in July. This happened for the first time in the last two years, experts emphasize. The reasons are a decrease in the cost of energy carriers and a long-awaited reduction in inflationary pressure. As a result, the producer price index in America decreased by 0.5% on a monthly basis and increased by 9.8% on an annual basis.

The current situation is weakening the dollar's position, increasing the risks for the growth of profitability in the United States. At the same time, such risks remain downward for the euro, despite the economic difficulties in the region. The current data on US inflation surprised the markets and provoked a rally in stocks and a fall in the greenback. However, analysts at Nordea Bank say that the greenback is far from consolidating in a downward trend. At the same time, the bank's specialists expect the euro to fall below parity, since the US economic indicators overshadow the indicators of European economies.

Currency strategists at Nordea Bank believe that in the coming months, the EUR/USD pair will test the parity level. At the same time, it is possible that the pair will fall below this level, for example, to the level of 0.9700. Currently, the euro has recovered by 0.84% against the greenback, having overcome the psychologically important milestone of 1.0300. At the moment, the pair was trading at 1.0336, but then retreated from high positions. The EUR/USD pair was near 1.0315 on the morning of Friday, August 12. At the same time, despite the euro's recent growth against the USD, many market participants are not ready to open short positions on the dollar.

For the US and European markets, the issue of slowing inflation is still relevant. According to Commerzbank economists, the Fed will resort to tightening the monetary policy to curb its growth. To do this, at the next meeting scheduled for September, the central bank will raise rates by 50 bps, analysts at Goldman Sachs believe. Central banks use all available methods to combat incessant inflation. Against this background, the San Francisco Fed does not rule out a third consecutive rate hike (by an impressive 0.75 percentage points).

After the release of the CPI (consumer price index) in the United States, representatives of the Fed stressed that it was premature to celebrate the victory. According to the central bank's estimates, the US economy is still far from reaching the 2% inflation target. Therefore, the Fed does not plan to slow down the rate of interest rate hike.

Previously, the US monetary authorities supported the central bank in slowing down the rate hike, but the current macro data may force them to reconsider their decisions. According to recent economic reports, American consumers and businessmen remain a small plus. However, the inflation rate is still high, experts emphasize. Against this background, the current goal of the monetary authorities, namely price stabilization, remains unattainable.

Larisa Kolesnikova,
Analytical expert of InstaSpot
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