The US dollar's steady growth, observed from time to time, is due to the interaction of three main factors – a decrease in risk appetite, inspiring US macro statistics, and the easing of geopolitical conflict. At the moment, the key "pillar" supporting the US dollar is American statistics.
Today, the US currency found it difficult to choose a direction, as markets assessed several factors affecting it. Its growth was facilitated by positive macroeconomic statistics from the US, which turned out to be better than forecasts. In particular, US retail sales soared 3.8% m/m in January 2022 against an expected rise of 2.1%. At the same time, the volume of industrial production in the country increased by 1.4%, while a growth rate of 0.4% was forecasted. Both indicators indicate favorable conditions for further tightening of the Fed's monetary policy.
The decline in risk appetite is also another factor stimulating the growth of the US dollar. In such a situation, investors go to protective assets, primarily gold and the US dollar. However, risk appetite has returned amid certainty over the Fed's new minutes, which is less hawkish than expected. This situation provoked the USD's temporary decline. At the same time, retail sales and the strengthening of the US labor market can improve global risk appetite.
Moreover, some weakening of the US dollar was facilitated by geopolitical tensions, namely, the alleged ceased of the military conflict around Ukraine. This provoked significant price dynamics for key trading instruments. As a result, the US currency turned to the downside. It was followed by gold and oil.
On Thursday morning, the EUR/USD pair was near the level of 1.1354. It is worth noting that the euro rose to the level of 1.1363 against the US dollar yesterday and managed to consolidate at this level a little later.
The growing inflation continues to put pressure on the US dollar. The current situation requires the Fed to take decisive action – to raise rates as soon as possible. The regulator cannot afford dovish rhetoric, otherwise, it will provoke serious economic shifts. ECB also made "hawkish" statements, which allows the key rate to be raised by the end of the year.
The US dollar is supported by the growth of retail sales in the country. The strong indicator neutralizes concerns about a possible recession in the American economy. Earlier, investors were worried that the upcoming Fed rate hike would negatively affect the US economy. It should be noted that the high probability of a recession poses a threat to further USD growth. However, experts believe that there are now no reasons to implement an unfavorable scenario.