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The third wave of the pandemic covers the world, due to this, new quarantine restrictions are being introduced in several countries. Tensions are growing again in Washington and the United States, which is a wake-up call for the markets. In Europe, the flames of the vaccine war are smoldering, risking breaking out.
Is it any wonder, then, that the defensive greenback is near multi-month peaks relative to most of its major competitors?
It is the United States among the representatives of the Big Ten that demonstrates the highest rates of recovery.
Although the American economy has not yet returned to normal, the latest statistics indicate that it is moving in the right direction.
The estimate of national GDP growth in the fourth quarter of 2020 was revised upward - from 4.1% to 4.3%.
The number of new applications for unemployment benefits in the US last week fell to an annual low of 684,000.
Macro statistics are also beginning to reflect the benefits of mass vaccination.
More than a third of the adult population in the US has already received at least one dose of the COVID-19 vaccine.
US President Joe Biden, said that within the first hundred days of his presidency, the number of vaccinated people will be 200 million against the previous goal of 100 million.
This, along with the positive statistics on the US, allowed the US stock market to regain its losses and end yesterday in the green zone.
However, JP Morgan experts warn that the end of the quarter is approaching, and bonds in the hands of pension funds have fallen in price. To bring their portfolio structure in line with retirement returns, they may need to get rid of as much as $300 billion in shares in a rather haste manner.
Therefore, according to analysts, despite the growth of major US stock indexes on Thursday, investors should prepare for the continuation of the "turbulence", which will play into the hands of a safe greenback.
Over the week, the US dollar has risen in price by almost 1%, which was primarily due to a decrease in demand for risky assets.
According to TD Securities experts, the USD index is currently flirting with a break above the 200-day moving average (at 92.6 points).
"In past events, when this happened, the greenback strengthened for six months. The average growth was about 6%," they said.
Against the background of the dollar's growth, the EUR/USD pair has been under strong downward pressure in recent weeks and has already reached the lowest levels since November last year, sagging below 1.1800.
The main reason for the weakening of the single currency is the increase in cases of COVID-19 in the eurozone, where national governments are forced to tighten restrictive measures.
It should be noted that the second wave of coronavirus in Europe, with massive lockdowns, did not prevent the main currency pair from showing a rally earlier.
However, then the economic prospects for the US, compared with the EU, were not as bright as they are now.
Also, it seems that the strengthening of the dollar comes with full approval from both the US and Europe.
The US needs to show that the USD is a strong currency to channel investors into the US government debt, which will need to finance huge economic stimulus packages. The eurozone needs a cheap EUR to maintain the competitiveness of European industrial products.
Thus, the greenback claims to remain at relatively high levels for a fairly long period, which can stretch to at least six months.
Throughout the month, the euro was trading in a bear market, and the trend remains downward.
On Friday, the EUR/USD pair managed to recover somewhat after falling to a four-month low near 1.1760, marked the day before.
The euro was able to partially regain its recent losses against the US dollar amid the release of the IFO report, which showed an improvement in the business spirit in Germany.
However, analysts said this is unlikely to stop the euro's decline, as concerns over the slow pace of vaccinations in the EU and disputes with former alliance member Britain over vaccine exports remain the dominant topic in the market.
"The single currency dropped below the 200-day moving average, and this is a clear sign that it will continue to decline," strategists at MUFG Bank said.
"The Euro is suffering from the slow pace of vaccination against COVID-19 in Europe, as well as new restrictive measures caused by fears that the third wave of COVID-19 will hit Europe and smoldering thoughts of a vaccine war between the EU and Britain," DBS Bank experts informed.
"EUR/USD could dip to 1.1695 and test the double bottom zone at 1.1603 as bearish momentum returns," they added.
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