EUR/USD: US dollar tries to be first

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The US dollar is taking confident steps towards the new week holding its conquered positions. Experts note that the greenback received solid ground while expecting the Fed's Chair Jerome Powell speech scheduled for Friday, August 27, at Jackson Hole.

According to analysts, Jerome Powell's speech will define the US dollar further trend. In early summer, the Fed Chairman noted that the subject of reducing the volume of the quantitative easing program (QE) remained a burning issue for the regulator. At the same time, he refrained from commenting on the Fed's further plans for tightening its monetary policy (MP). The Fed officials are expected to gradually steer toward the easing program termination. Experts believe that this is likely to happen at the economic policy symposium at Jackson Hole or at the FOMC meeting on September 22.

The Fed's intention to reverse its easy policy was a dominant topic. For example, Robert Kaplan, president of the Dallas Fed, said that the Fed would refuse to cut its asset-buying program if the negative impact of the delta variant on the US economy intensifies. Experts assume this scenario due to the new strain of coronavirus invading the US raises doubts about the necessity of winding down the QE program. The Fed may postpone the program tapering, which will increase the volatility of the US dollar.

In this situation, the greenback experiences some turbulence but remains firm keeping up with the euro. On Monday, August 23, the safe-haven currency logged its highest level in nine months. It caused a sharp decline in the US dollar counterparts amid the delta variant impact on the economy. Primarily the Australian dollar and New Zealand dollar suffered the most.

The greenback receives support from market expectations about the upcoming QE program tapering. However, the US dollar may lose its dominating position at any time. Currently, the USD strengthening is not sustainable and the exchange rate is making a difference. On Monday morning, August 23, the EUR/USD was trading near 1.1719, trying to break out of that range.

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Nordea Bank economists believe that in the near future the greenback will continue to strengthen, and in the long term the EUR/USD pair will be able to reach 1.1000. According to Nordea Bank specialists, not only does the rollback of the QE program belong to drivers for the EUR/USD pair, but also the further monetary policy of the European Central Bank.

Nordea Bank economists expect a relatively positive reaction from the ECB in case of EUR/USD decline. "Would the ECB be annoyed with a lower EUR/USD reading? Not at all since a lower reading would be helpful in bringing EUR inflation to 2% or above as wished for. This leaves a decent scope for a move lower in EUR/USD, also as positioning is not yet USD heavy," Nordea Bank stated.

Nordea Bank believes that the relative inflation outlook is largely favorable to the USD against the EUR. According to experts, this situation indicates a gradual discrepancy in the strategies of the Fed and the ECB. "We expect the first hike from the Fed in September 2022, followed by another three hikes in 2023. Against the modest Euro-area inflation outlook, we do not see any ECB rate hikes even in our extended forecast horizon until the end of 2023," Nordea Bank economists said.

The tense situation with a new variant of coronavirus still acts as a decider when it comes to the EUR/USD pair trend. Investors are trying to escape from risks, so they buy the safe-haven currency. These are the key tendencies according to OANDA experts. The market cannot ignore the problems associated with the delta variant and the unsuccessful attempts to return the economy to normal state. This is especially relevant for the US. OANDA specialists underline that it is not a good story for the developing world either.

The material has been provided by InstaForex Company - www.instaforex.com

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