FX.co ★ Euro's victory: is the point in the dispute with the dollar set?

By the end of this week, the European currency can breathe a sigh of relief and celebrate the victory: it managed to win against its rival, dollar. The euro was the winner, overtaking the dollar and showing impressive growth. Experts believe that this trend will continue in the coming weeks.

At the moment, most of the external and internal factors are on the side of the European currency. Earlier, it received strong support from the initiative of the European Commission, which provides large financial injections into the economy of the eurozone in the amount of € 750 billion. It can be recalled that this amount should go to the restoration of the economies of the European countries that were most affected by the COVID-19 pandemic.

Following the unveiling of the plan, the euro has become a unique beneficiary of investors leaving the dollar, which is traditionally considered a safe haven asset. This state of affairs added optimism to the euro, and it took the chance to get around the dollar. The efforts of the single currency were successful, however, the approval of the above financial assistance program on the part of the majority of the Eurobloc participants is necessary for the final victory. A decision on this issue will be taken today, June 4, at a meeting of the ECB. In addition, the markets are set to expand this program, expecting additional injections worth € 500 billion. According to experts, if these hopes are not met, the European currency will experience tremendous pressure, pulling down a pair of EUR/USD. According to analysts, the amount of € 750 billion allocated earlier may not be enough to cover all the costs of the eurozone.

Experts have envisioned three possible scenarios for the current ECB meeting. In the first case, Christine Lagarde, the head of the regulator, will leave things as they are, taking a wait-and-see position. In such a situation, only the euphoric memories will remain for the European currency, since it is expected to plummet in all aspects.

The second scenario will result in the expected expansion of the financial assistance program in the amount of € 250 billion. According to analysts, a partial influx of additional funds is better than nothing. In this situation, the eurozone economy will be in the black, and its recovery will go faster, although the countries most affected by COVID-19 will be more difficult than the rest. Such a decision will positively affect the dynamics of the single currency, but the growth of the eurocurrency will be restrained.

In the third case, the most positive, the market can count on a large-scale program of financial assistance to the Eurobloc economies in the amount of € 500 billion. In this situation, the euphoria of the euro will peak. Analysts conclude that the single currency will be able to continue to celebrate the victory.

To date, the single European currency maintains a cheerful mood, continuing the trends of yesterday. It can be noted that by Wednesday evening, June 3, the euro rose 0.2% to $ 1.1193, reaching an 11-week high. The single currency took advantage of the weakness of the dollar, which dropped noticeably against most world currencies. The reason for this decline in USD was the widespread improvement in risk appetite from investors. On Thursday morning, June 4, the EUR/USD pair was trading within the range of 1.1215 - 1.1216. Afterwards, the pair fell a little, but a cheerful mood is still preserved. In anticipation of the ECB meeting, the EUR/USD pair declined slightly back to the levels of 1.1208 - 1.1209, but did not lose optimism.

In the wake of financial hopes, the euro has been actively growing over the past seven days in a row. According to experts, this is the longest series of EUR victories since December 2013. The current depreciation of the dollar, which is especially noticeable against the background of "euphoria," is powered by a number of factors. Among them - the anticipation of the opening of the eurozone economies after a long quarantine, introduced due to the spread of coronavirus, and the positive expectations from the introduction of incentive measures by most central banks.

Despite the growing negativity against the dollar, US assets remain attractive to most investors. Experts consider the current fall of the dollar to be a kind of correction of the large-scale monetary premium that other countries that depend on the USD pay for risk. According to analysts, the time has come to reassess the current strategy of the Federal Reserve. At the moment, Jerome Powell, the Fed chairman, will have to weigh the pros and cons to figure out what to do next with infinite liquidity. It is important for the Federal Reserve not to miss the moment when the USD correction can go into a deafening collapse of the national currency.

According to experts, a weakening dollar will benefit the global economy in the medium-term. This trend will support the process of restoring other economies by balancing capital flows. Analysts believe that the Fed's efforts were not in vain and that he did his job perfectly. However, it is now the time has come to exit stimuli, and how smooth this transition will be on the regulator.

Experts, having analyzed the current victory of the European currency, warned the markets against excessive euphoria. They believe that a point in the leadership dispute between EUR and USD has not yet been set. Analysts recall the volatility of the external background and the unstable situation within the American and European economies. Now, the Euro currency is rejoicing, but economists conclude that the scales can lean toward the US currency at any moment.