The US currency has experienced a dizzying growth after the reappointment of Jerome Powell, Fed chairman, to the post of head of the regulator. However, analysts fear that the Fed will put possible pressure on the US dollar.
The worries of market participants are associated with the "hawkish" sentiments of the regulator, which may intensify after the approval of J. Powell as head of the department. Many economists are confident that his nomination for a second term is the first step towards raising interest rates in the United States in 2022. At the same time, analysts believe that the leadership of J. Powell will change little in the current policy of the central bank and will not shock the markets.
J. Powell's appointment as Fed chairman reassured investors, having a beneficial effect on the state of the market. Experts believe that his nomination for a second term means predictability and stability. This is very important in light of the new decisions of the central bank: to start raising rates in the new year and reduce the pace of buying bonds. Earlier, the importance of stability was stated by US President Joe Biden, who appointed J. Powell for the post of chairman. This decision was not without criticism from a number of representatives of the monetary authorities. However, the US president retorted that it was the former chairman who would lead the Fed on the right course, which would have a favorable effect on the national economy.
The current situation gave the US dollar a head start, allowing it to become the leader. On Tuesday, it approached the peak values for the last four and a half years. At present, the American currency is stable against the European one, which cannot be said about the latter. On Tuesday morning, the EUR/USD pair was hovering around the level of 1.1234, trying to move higher. Experts say that a small stop in the US dollar's growth will not prevent it from continuing the upward trend.
The euro remains the weak link in the EUR/USD pair. Market participants are alarmed by the upcoming statistics on the level of business activity in the eurozone. Experts expect this indicator to fall to 53.2 points, which does not add optimism to the euro. This currency has little chance of growth in the medium and long term. However, in the short term, analysts believe that a correction is possible. It can be recalled that the EUR/USD pair collapsed after the introduction of strict restrictive measures in Austria related to the increase in the cases of COVID-19.
Economists are relatively calm about the Fed's monetary policy. They are confident that the regulator will follow the chosen strategy, which provides for a reduction in the purchase of state bonds and an increase in rates in 2022. As for J. Powell, then he will support the chosen course, analysts believe. Earlier, the head of the Fed said that the central bank is ready to fight unemployment and high inflation in the United States. According to J. According to Powell, the American economy is currently developing "at a faster pace than before, and this promises a return to maximum employment." He stressed the harm of high inflation for American households, noting that the Fed is using everything possible to reduce it and prevent negative consequences.
Over the past six months, US consumer inflation has not fallen below 5% year on year. Against this background, the regulator's statements about the "temporary nature" of price pressure look unconvincing. According to the forecasts of economists surveyed by Bloomberg, the increase in consumer inflation in the United States will be 4.5% and 3.6%, respectively by the end of 2021 and 2022. Economists said that the current state of affairs allows the Federal Reserve not to rush to tighten the monetary policy, although the rhetoric of a number of its representatives has recently acquired a "hawkish" tone.
In the current situation, the US dollar is caught between a rock and a hard place. On the one hand, the existing monetary policy contributes to its growth, and on the other hand, the threat of a collapse becomes real. This currency is being cautious, and this balancing act between the likelihood of recession and recovery worries investors. If the dovish sentiments on the part of central banks increase, an intensified unwinding of the inflationary spiral is possible. As a result, investors will focus on pro-risk assets. All hope is for a reassessment of decisions on the MP by regulators, who, under the influence of the next wave of the COVID-19 pandemic, unclear prospects for the global economy, disruptions in supply chains, and further inflationary dynamics, may change their strategy.
The US currency was able to benefit from the current situation. It holds high positions, being in demand among investors. According to analysts, it will remain in line with the upward trend next year, maintaining stability against the world's leading currencies, in particular the euro and the yen. In many ways, this was facilitated by the re-election of J. Powell as the Fed Chairman. Experts believe this is the first step towards curtailing stimulus measures, which gives the US dollar a head start.