FX.co ★ Euro attempts to recoup its losses. Fed hawks willing to take decisive actions

The current geopolitical situation is very complicated. Therefore, the European currency has difficulties, trying to hold its ground. However, the euro attempts to stay afloat with mixed success, unlike the dominant dollar. Amid these economic conditions, the Fed hawks become more confident, willing to take decisive action.

The Fed's plans to raise the interest rate are not hampered by the military conflict between Russia and Ukraine. The US regulator is pursuing its course of tightening monetary policy, despite the escalation of the conflict. However, the tense situation in Ukraine adds some uncertainty to the upcoming FOMC meeting scheduled for March 15-16. The current conditions may be the reason for the regulator to introduce emergency measures to make the US dollar more accessible to international financial market participants.

The Fed representatives assume the next inflation cycle to start, damaging the US economy. Experts believe that the regulator's hawkish stance is reasonable amid this situation. The Fed plans to raise its key rate at the March meeting and tighten monetary policy in the coming months.

As for the European regulator's intention to raise the key rate, experts have opposing views. Many believe that the military conflict will prevent the ECB from changing its monetary policy. Other experts think that the European regulator will follow suit of the Fed and will pursue its plan to tighten monetary policy.

The complex geopolitical situation triggered the USD rally after the Russia-Ukraine talks started. The euro recovered some of its losses, while the greenback slowed down against the major world currencies. The EUR/USD pair showed increasing bearish sentiment at the beginning of a new trading week.

Later, the situation has slightly stabilized. However, there are still unresolved issues. The euro gained a short-term respite, while the greenback is not willing to lose ground. On Tuesday morning, March 1, the EUR/USD pair was trading at 1.1200. Experts believe it is a psychologically important level for the pair to start an upward movement.

Currently, market participants adopt a wait-and-see attitude, which has considerably reduced their risk appetite. Therefore, the US dollar is strengthening against the euro. Traders and investors estimate that the Fed will raise interest rates by 25 basis points (bps).

Currency strategists at Societe Generale expect the ECB rate hike by a similar amount at the upcoming meeting scheduled for March 10. The bank officials believe that the rate hike will stimulate the euro growth. According to preliminary estimates, the regulator will raise its key rate by 25 basis points to curb inflation by the end of 2022.

Many economists are confident that the crisis in Ukraine will not alter the Fed's plans for a rate hike. At the same time, analysts expect major changes in the existing world order and negative consequences of the military conflict. However, the Fed and the ECB are currently focused on inflation and its development. According to analysts, the scale of USD growth is determined by the amplitude of stock exchange volatility, the volume of sell-offs on global markets and the tightening of monetary policy of central banks.