Since the beginning of January, the greenback has grown by almost 2.5%, contrary to the expectations of some analysts that it may fall by 20% this year.
One of the factors behind the strengthening of the USD was the approval by the US Congress of the next package of fiscal stimulus worth $1.9 trillion.
The approval of this package has strengthened inflationary expectations.
Usually, the growth of inflation in a particular country negatively affects the national currency. However, such prospects do not particularly frighten the dollar.
The fact is that market participants are betting on a faster recovery of the United States, whose economic prospects look better compared to other leading countries.
In addition, the excessive stimulus to the economy is building up inflationary pressures, which in theory will force the Fed to raise interest rates earlier than planned.
According to a recent poll by Goldman Sachs, investors are already targeting three federal funds rate hikes through 2023 into current US Treasury bond prices.
The main issue that was in the air on the eve of the March FOMC meeting was the sharp rise in the yield of US government bonds.
However, during the final press conference, Fed Chairman Jerome Powell said that rising Treasury yields are not an issue to worry about right now. He stressed that unemployment in the country remains too high, has mixed consequences, and has radically changed the lives of many. Also, Powell predicted a possible rise in consumer prices over the next twelve months, noting that it will be temporary.
It turns out that the Fed is now more worried about unemployment than inflation.
The data released the day before showed that the number of Americans who applied for unemployment benefits for the first time last week increased by 45,000, to 770,000. The value of the indicator has become the maximum over the last month.
"In line with our expectations, the FOMC continued to signal that there is no reason to raise the interest rate until 2023. We believe the Fed will begin discussions on asset purchases cut in Q4 2021 and begin actual cuts in Q1 2022. According to our estimates, the rate of reduction will amount to $20 billion per meeting, so the QE program will end in September 2022," said Danske Bank specialists.
"We also expect a further upward revision of the Fed's forecasts and think that the markets will move in the same direction. Thus, any fall in the dollar is likely to be temporary. We will change our view of the USD if we see a weaker than expected recovery in US jobs over the summer," they added.
Greenback perked up on Thursday, having managed to win back most of the losses incurred against its main competitors following the Fed meeting in March.
Market sentiment quickly deteriorated amid renewed rally in Treasury yields. The day before, the indicator for 10-year securities reached its maximum values since January 2020, having risen to the area of 1.75%. This led to a fall in the American stock market and supported the dollar.
On Friday, the 10-year Treasury yield dropped below 1.70%. Against this background, the USD index dipped to 91.7 points, but then recovered, rising above 92.1 points.
The defensive greenback was supported by news that a confrontation had been noted during talks between the United States and China, which began the day before in Anchorage, Alaska.
In particular, both sides criticized the human rights situation of their opponent. Investors fear that another trade friction between Washington and Beijing could damage the world's two largest economies.
The EUR/USD pair tried to take advantage of the decline in Treasury yields and reached a local high around 1.1930, but then pulled back.
The European Medicines Agency (EMA) has given the green light to resume the use of the AstraZeneca vaccine after it was previously suspended due to blood clots scare.
However, the vaccination campaign in the eurozone is still slow, while the US is expected to vaccinate 50% of its population by mid-May.
As for the technical picture, the EUR/USD pair is still holding below the 100- and 200-day moving average, and the bears continue to control the situation.
Support is found at 1.1880, 1.1850, and 1.1830.
Resistance is noted at 1.1935, 1.1960, and 1.1990.