Last week, the greenback weakened somewhat against its main competitors - the euro and the pound, allowing them to win back their recent losses.
Having touched 20-year peaks above 114.70 points, the dollar came under the influence of cash flows characteristic of the end of the month and the quarter. It moved to decrease and completed the last five days at the level of 112.10 points.
Meanwhile, sterling gained nearly 3% against its US counterpart to $1.1160, posting its biggest weekly gain in more than two years.
The pound was able to recover from a record low of $1.0327 on Monday.
The Bank of England extended a helping hand to the pound, which announced the purchase of long-term government bonds in order to stop the panic in the local debt market.
The euro followed the sterling. The single currency rebounded from a new two-decade low hit near $0.9530 on Wednesday. According to the results of the last five-day period, EUR has risen in price against USD by more than 1%, which was the best weekly indicator in four months.
The euro owes its success to verbal interventions by European Central Bank representatives, who pointed to the need to raise the rate at the upcoming central bank meeting on October 27 again by 75 basis points.
At the start of the new week, the greenback continued to suffer losses, sinking to the lowest levels since September 23 in the area of 111.50 points.
"The dollar came under strong selling pressure and fell more than we expected. However, any further loss of the US currency should be corrective. We believe the greenback's current weakness is just a pause in the bullish trend as the macro factors that drive it remain in place," ING analysts said.
"While there is a possibility of USD dropping to 110 points, and we still expect a rise to 120 points later this year, when the Fed tightens monetary policy even more," they added.
According to experts, in an environment where the Federal Reserve is struggling with high inflation, and the US economy is at risk of falling into recession, it is worth waiting for the preservation of demand for protective assets and the resumption of the dollar's growth against the euro and the pound.
It is assumed that in the coming months the EUR/USD pair may drop to 0.9000. In case of a deeper drawdown, the quotes may go to 0.8200, but so far this movement looks less likely.
As for the GBP/USD pair, in the short term it may fall to the parity area or below.
"We expect EUR/USD to fall to 0.9000 by the end of the year and GBP/USD to fall to 0.9750 over the same period," Nomura said.
"Our view is largely driven by: 1) declining trade balance in Europe and regime change for the dollar with increased oil and LNG exports from the US; 2) falling global growth expectations, putting pressure on pro-cyclical currencies such as the pound and the euro; 3) an increase in credit risks and market stress," they explained.
Since the greenback is a safe haven, fears that the US economy could slide into recession next year will support the dollar, Rabobank strategists say. They see opportunities for the greenback's further growth against the euro and note that the EUR/USD pair may fall below the level of 0.9500.
"We are targeting 0.9500 in EUR/USD, but we are open to a breakthrough below that level," Rabobank said.
They expect to see the GBP/USD pair at 1.0400 over a three to six month horizon and do not rule out a move towards parity depending on decisions made by the UK government.
Although many European countries have similar problems as in the US, however, in the eurozone, the economic prospects look worse.
The ECB and the BoE are still keen to raise interest rates, but are unlikely to do so too quickly, risking otherwise exacerbating the economic downturn.
Wells Fargo believes that euro weakness will continue and expects EUR/USD to fall to 0.9100 by the first quarter of next year.
"High and rising inflation should continue to put pressure on European consumers, and disruptions to energy supplies could more directly affect manufacturing activity in the region. Consumer confidence surveys now clearly point to contraction, especially in Germany, the region's largest economy.
"While the ECB should continue to raise rates, the lack of growth in the eurozone should leave it far behind the Fed, and this is another factor that could see the EUR/USD pair hit 0.9100 by the first quarter of 2023" they added.
Wells Fargo also expects further weakening of the pound. According to the bank's forecasts, the GBP/USD pair will be close to the parity level in the next six months.
"With the UK still slipping into recession, we forecast that the Bank of England's rate hikes will fall short of the level of the Fed or the amount of tightening currently envisaged by market participants. We expect the pound to fall to parity with the dollar over the next six months," Wells Fargo analysts said.
As in the United Kingdom, attention in the eurozone is shifting to the size of fiscal support packages and whether local bond markets can easily digest them, ING economists say.
"The 0.9850-9870 area could be the limit for the current EUR/USD bounce. We expect to retest the 0.9500 level in October," they said.
Eurozone inflation surprised at 10% year-on-year in September, beating expectations of 9.7%, but the euro was not supported by the data, ING strategists said.
Intesa Sanpaolo analysts believe that the acceleration of the ECB rate hike in response to inflation data may not be enough to protect the euro from renewed weakness.
They indicate that energy prices rose 40.8% in September and were responsible for much of the inflationary push in the eurozone.
Prices of consumer durables jumped 5.6%, reflecting an increase in the core consumer price index from 4.3% in August to 4.8% in September.
"The ECB will be watching this closely as the price trend continues to widen," DWS Group said.
Leading indicators such as producer prices and price surveys signal that the end of inflation is not yet in sight, they said.
"Continued failure to meet the inflation target should still be expected. Therefore, only the normalization of monetary policy in these conditions is not enough," said the DWS Group.
The EUR/USD pair could fall to 0.9200 if fiscal difficulties worsen or energy problems in the EU worsen, analysts at Credit Suisse said.
"The market is very aware of the risks of a deep recession in the eurozone and the possibility of serious blows to both consumer spending and industrial production. Fiscal spending will have to fill many gaps," they said.
On Monday, the EUR/USD pair sank to a local low at 0.9755, then bounced to 0.9845 before falling back to 0.9790 before returning to the area above 0.9800.
"The EUR/USD pair tested the bottom of the channel at 0.9500, which led to a rebound. However, for sustainable growth, the pair should consolidate above 1.0050-1.0200. If the fall continues below 0.9500, EUR/USD may test the next targets at 0.9380 and 0.9200-0.9150," Societe Generale believes.
Unlike the euro, the pound took full advantage of the greenback's weakness.
The pound also benefited from the fact that the United Kingdom government decided to abandon the previously proposed abolition of the highest income tax rate.
Sterling rose against the dollar by almost 1.5% from the previous close of $1.1160.
"The next resistance for GBP/USD is seen at 1.1321 ahead of 1.1364. The pair will then face much tougher resistance in the 1.1409-1.1500 zone. We expect this to prove to be a major barrier and the broader trend to turn down again. A close above the September high at 1.1739 is needed to suggest we may have seen a more significant low," Credit Suisse strategists said.
"Initial support is at 1.1195 and then at 1.1085. A break below 1.1025 would ease the immediate upside bias and bring the 1.0933-1.0916 area into play," they added.