FX.co ★ EUR rises along with USD

The US currency continues rising, whereas the euro is trying to follow its rival. By the moment, the single currency has managed to gain in value, but the rise will hardly be long-lasting.

On Monday, in the second part of the day, the euro advanced against the US dollar amid the mounting appetite for risk assets and weaker geopolitical threat. Concerns were somehow alleviated by the news that Russia and Ukraine might achieve some progress in the negotiations. Against this background, demand for the safe-haven assets dropped as investors switched to risk assets, including the euro. On Monday, the euro/dollar pair was trading at 1.0949. During the previous trading session, the pair failed to exceed 1.0909. Early on Tuesday, it was trading within the range of 1.0980-1.0981.

According to analysts, at the beginning of the week, the euro/dollar pair hit its daily high of 1.0989 amid the expectations of the resolution of the Russia-Ukraine conflict. At the moment, the pair is trading in the green. Technical indicators stabilized after the correction and left the oversold levels. However, the pair may slide to new yearly lows near 1.0800.

The greenback gained in value under the existing conditions. Strategists at Wells Fargo suppose that it is likely to stabilize by the end of the first quarter of 2022. Analysts are taking into account aggressive tightening of monetary policies by numerous central banks, which should support the greenback. Wells Fargo foresees that in the first quarter of 2022, the greenback's upward potential will rise and the rally could be long-lasting. The Fed may raise the benchmark rate at a faster pace than other central banks.

Market participants expect decisive measures from the Fed at the upcoming meeting. The results of the FOMC meeting will be disclosed on Wednesday, March 16. Analysts suppose that the regulator will announce the first key interest rate hike. Such measures last took place in 2018. At the moment, monetary authorities are trying to withstand a double threat: surging inflation, which has already hit a 40-year high, and economic instability caused by the Russia-Ukraine crisis. The Fed may raise the benchmark rate by 25 basis points and reduce its balance.

Earlier, after a two-day meeting, the Fed announced its intention to raise the key interest rate by 25 basis points. This is necessary to cap the soaring inflation, which totals 7.9%, thus significantly exceeding the targeted level of 2%. A considerable rally in the commodity market has become an additional reason for the monetary policy tightening. However, there are concerns that a high key interest rate may slacken economic growth and cause a jump in consumer prices. This, in turn, has a negative influence on consumer activity.

Experts at Wells Fargo think that markets will have to adapt to a slower key interest rate hike. This may allow the US dollar to rise against most currencies of the G10 countries and against currencies of emerging markets.