09.12.202110:55 Forex Analysis & Reviews: US dollar gave up, but its weakness is deceiving

The US currency behaves like a cat that has hidden its claws but is ready to release them at any moment. Such tactics help this currency to bypass rivals, although it has periods of noticeable weakening

At the moment, experts are recording a slight deviation of the US dollar from previous highs. Conflicting data on a new mutation of the coronavirus "Omicron" has caused some confusion in the market sentiment. On the one hand, experts claim its relative safety compared to other varieties of COVID-19, and on the other hand, there is a high probability of downplaying the risks. It can be recalled that the UK authorities decided to play it safe the other day and introduced additional restrictions that brought down the pound.

Market participants are afraid of a similar fate for the US currency, so they are undecided. Against this background, it is difficult for it to determine the direction ahead of the release of reports on the American labor market. According to preliminary forecasts, the number of initial applications for unemployment benefits in the United States decreased by 7 thousand to 215 thousand during the week. Experts do not rule out that the new macroeconomic data will become the driver of the Fed's speedy transition to tightening the monetary policy.

The current situation brings a note of uncertainty to the dynamics of USD. According to analysts, the short-term trend of the EUR/USD pair is bearish. On this wave, further growth of the dollar should be considered as a favorable opportunity for sale. According to experts, the EUR/USD pair may test the low of 1.1200 in the near future, typical for the end of November 2021.

Currently, the pair is influenced by the dynamics of the US dollar. The EUR/USD pair is steadily moving towards the highs recorded after the publication of the NFP. Analysts said that the further upward movement of the pair will open the way to a new high at 1.1400. On Thursday morning, the EUR/USD pair was near the level of 1.1334, successfully breaking through the next obstacles.

The growth in demand for the US currency is facilitated by factors such as geopolitical tensions and the high probability of a Fed rate hike. A slight slowdown in demand is caused by a shift in focus on the upcoming reports - on the US labor market, scheduled for Thursday, and on US consumer inflation, which is expected on Friday. The updated data may stimulate the Federal Reserve to complete the asset purchase program faster and raise the rate in 2022. Earlier than expected, experts believe that the tightening of the monetary policy by the regulator will limit the growth of inflation and help the US dollar.

Most economists polled by Reuters are voting for an earlier Fed rate hike, moving its timing to the third quarter of next year. The previous forecast assumed an increase in rates in the fourth quarter of 2022. The reason for such haste is the extremely high level of inflation in the United States. In general, analysts expect a threefold increase in the rate: in the fourth quarter of 2022, as well as in the first and second quarters of 2023. More than 60% of experts polled by Reuters predict the curtailment of the asset purchase program by March next year. According to economists, new COVID-19 mutations and increasing inflation will be the key factors of downward risk for the US economy next year.