The dynamics of the US currency experience certain cycles of development. Experts believe that it is now the time for a decline, which will be replaced by growth at any moment. However, it seems that this decline of the USD may be delayed.
On the morning of February 19, the US dollar was consolidating after significantly declining for the last 10 days. It is now slightly lower amid uncertainty about the economic recovery of the country, but still not yielding. Today, the EUR/USD pair is trading in the 1.2127-1.2128 range. A lot of experts do not rule out its possible decline to the level of 1.2000.
Investors and traders are focused on the condition of the US economy and its recovery prospects after COVID-19. The markets were generally disappointed with the weak US labor market data. Therefore, investors and traders are reanalyzing these controversial statistics. It can be recalled that it showed optimism earlier this week: January's US retail sales rose by 5.3% after declining by 1% in December. However, the situation had changed. The problem lies on the negative labor market report published on Thursday. It is fair to note that the number of initial applications for US unemployment benefits for the previous week rose by 13 thousand, that is, to 861 thousand, respectively. This is against analysts' expected decline to 765 thousand.
Another major factor that keeps the market on the edge is the proposed new $ 1.9 trillion stimulus package of US President Joe Biden. The adoption of the next fiscal stimulus comes against the backdrop of rising inflation expectations, which negatively affects the dynamics of the US dollar. The weak report on the US labor market also adds pressure to the national currency.
Experts are worried that the current uncertainty will provoke a market imbalance. The Fed's super-soft monetary policy, which is being pursued by the American authorities, also worsens the situation. It is expected to help minimize the negative impact of COVID-19, but for the US dollar, this strategy turned out to be a trap. It has fallen into a vicious cycle and can only expect to stabilize the situation when the economy recovers.
Based on the updated statistics in the US, the country recorded an immediate growth in consumer and production prices. This previously caused the dollar to decline and the price of exchange-traded assets to grow, but things have now changed. Currently, the price growth can provoke another round of inflation, which will exceed America's economic recovery. In such a case, the Fed would start tightening the monetary policy.
In this context, the US currency shows desire to continue its growth, but it lacks resources. According to analysts, the familiar role of the dollar as a safe haven currency is now in question. It becomes like a bag with a hole, which gradually loses its potential. This flow is hardly seen, so it does not have a significant impact on the market. However, experts warn that this situation may become a particular threat for the US dollar and the US economy.