The US dollar is finishing this week in positive territory. USD has once again risen above EUR, which has fallen to extreme lows. The US currency found support in the Fed's stance on monetary tightening.
At this moment, the US regulator is following its original plan of raising the interest rate by 50 basis point at once, which is expected to curb galloping inflation. The Fed's position is pushing the US currency up.
The US dollar has also found support in investor demand for safe haven assets amid the prolonged war between Russia and Ukraine. Analysts expect demand for USD to subside once the conflict ends. At this point, however, the standoff in Eastern Europe is fueling USD's upsurge.
Amid expectations of the upcoming interest rate hike in the US, the greenback touched a 20-year high, set to post the best monthly performance of the past 10 years. However, USD retreated after the release of disappointing US macroeconomic statistic data.
According to the Bureau of Economic Analysis, the US GDP declined in the first quarter of 2022 by 1.4%. Economists expected the US economy to increase by 1.1%. As a result, EUR/USD recovered some of its losses, trading at 1.0532 early on Friday, April 29.
Earlier, the pair hit the lows of early 2017 on Thursday, April 28, and approached the critical level of 1.0500 following several straight days of losses as market players anticipated that EUR could reach parity with USD. The divergence between monetary policies of EU and US regulators boosted the nosedive.
However, the recovery of the euro could be short-lived. The European currency needs to regain 1.0760 to rally and decrease bearish risks for EUR/USD, experts say.
The US dollar has attracted investor demand thanks to significant yield differential against other currencies. The US dollar index has touched a 2-year high, surpassing 104.00. USDX gained 4.5% in April - the biggest jump since May 2012. USD has also found support in rising inflation expectations in the United States. According to Fed Reserve Bank of St. Louis, inflation expectations have reached 2.97% after rising for the second straight day.
The Federal Reserve is very likely to hike the Fed funds rate by 0.50%, experts note. The US dollar could benefit from a further increase of inflationary expectations, as well as the regulator's hawkish course.