FX.co ★ USD struggles to maintain upward movement

The US dollar is trying really hard to maintain its bull run despite strong bearish pressure. So far, its attempts have been futile. There are several reasons for that. Some analysts assume that the long-term rally of the greenback is likely to end soon followed by a steady rise in the euro and the pound sterling. Is it really possible?

The US dollar index was able to consolidate at 107.00 on Wednesday, remaining in the downward range. Investors are looking forward to the release of the FOMC meeting minutes. They may give clues about the Fed's future plans for monetary policy.

Yesterday, several Fed policymakers delivered their speeches. The majority backed further tightening to cap soaring inflation. However, some Fed members said that it would be appropriate to slow down the pace if needed.

San Francisco Fed President Mary Daly warned that "officials will need to be mindful of the lags with which monetary policy works." At the same time, Cleveland Fed President Loretta Mester believes that it is necessary to wait for a steady decline in inflation before taking a pause in aggressive tightening.

Even though Fed officials have somehow different opinions, they have admitted the possibility of smaller rate hikes. Traders who have been waiting for dovish signals for quite a long time started to factor in a sifter stance.

For this reason, the question is whether the US dollar has hit its peak.

Analysts expressed different points of view.

"A dollar top would still appear to be "several quarters away," Goldman Sachs said. The bank expects a significant decline in the US dollar next year.

The think tank assumes that the US dollar has plenty of drivers such as a strong labor market and a resilient economy. It could help the US avoid a recession. However, given the growing concerns about financial stability, the mortgage market, and recession in many countries, it appears that other central banks may not keep up with the Fed.

Nevertheless, analysts stress that the risks are quite similar. The US dollar will surely end its upward cycle. However, it may take more time than previously anticipated.

There are no downside risks for the US dollar yet. Yet, if the greenback drops below 105.00 and 104.60, bulls may lose ground. If so, support levels will be located at 103.00 and 101.90.

A strong resistance level is now seen at 110.00.

GBP to reach new highs

HSBC believes that it is high time to price in a steady recovery of the pound sterling against the US dollar. Analysts are confident that risk sentiment may improve soon. Besides, traders are well aware of the economic headwinds the US is now facing. So, they have priced them in.

The GBP/USD pair sank by 12% this year. At the same time, bullish factors that have been pushing the greenback up may soon disappear. This is why the trajectory of the greenback is likely to change drastically next year.

The US currency has been also rallying amid shrinking global growth. However, the global economy started showing green shoots of recovery. It means that the greenback may be now approaching the low of the cycle, especially amid bearish expectations, HSBC pointed out.

Another factor that propelled a rapid rise in the US dollar was the Fed's hawkish stance. Economists reckon that the regulator could take a less aggressive approach next week.

Improving prospects of the world economy as well as rising Treasury yields may foster demand for risky assets. It will be rather bearish for the greenback.

Notably, the pound sterling has far more drivers than increased risk appetite.

In recent years, the pound sterling has been quite sensitive to risk appetite. This is why it may soon recover from the current low levels as risky assets are winning back luster with investors.

Apart from external factors, traders should also pay attention to internal ones. Some economists believe that the UK is likely to stabilize its financial situation.

The government's tight fiscal policy and recent economic reports somehow boosted confidence in the economic prospects of the country.

Another problem that traders have already factored in is the UK's current account deficit. The government faced this obstacle in 2022 when gas and oil prices skyrocketed. The pound sterling collapsed due to soaring energy prices.

HSBC stressed that the UK current account deficit seemed to have slightly reduced.

The pound sterling also lost momentum due to the BoE. The latter was in no hurry to hike the key rate undermining the growth of the national currency.

Yet, speculators also priced in the UK's cyclical economic problems. The BoE's cautious approach to monetary policy may eventually facilitate a rise in the pound sterling.

By the end of the first quarter of next year, it may settle at 1.1500. At the end of the second quarter, it is projected to grow to 1.1800. By the end of the year, it may climb to 1.2500, which is significantly higher than the previous forecast reading of 1.0800.

As for the short-term prospects, the pair is likely to advance to the target level of 1.2000 thanks to the ongoing steady growth.

Before that, the pair needs to consolidate above the 1.1800 level. If it drops below this level, there could a downward reversal.

EUR

The outlook for the euro/dollar has not changed significantly. Credit Suisse expects the pair to end the year at the level of 1.0350.

The euro needs some powerful drivers, namely unexpected events or price swings. So far, there have been none. The ECB is likely to raise the key rate by 60 basis points on December 15. so, the pair may grow if inflation in November is higher than expected. The CPI report is on tap on November 30. Traders may start pricing in a more aggressive rate hike of 75 basis points.

"In my view, there is a high probability that quarterly growth in the fourth quarter of this year will be negative," ECB Vice-President Luis de Guindos pointed out. If so, bulls may stay away from the market.

The EUR/USD pair broke through the resistance level of 1.0305 and consolidated above this level. It may stimulate a short-term rally. The pair is likely to rise to the target levels of 1.0400 and 1.0515.

To do so, it needs to settle above 1.0285. Otherwise, the downtrend will persist.