07.09.202209:21 Forex-elemzések és áttekintések: US dollar skyrockets on positive US macroeconomic data

The US dollar continues to rise against other major currencies, particularly the euro. Despite all efforts, the euro periodically drops against USD, which is firmly supported by positive US PMI data.

According to the Institute for Supply Management, business activity in the service sector increased in August thanks to new orders and rising employment. The ISM services PMI roes to 56.9 from 56.7 in July. Market players expected the index to reach 55.5 points. The ISM prices index decreased slightly to 71.5 in August from 72.3 in July, while the employment index advanced to 50.2 from 49.1 in the previous month. As a result, the US dollar index jumped by 0.547%, boosting the positive sentiment in the market.

The US dollar took advantage of the situation and advanced towards new highs. Early on Wednesday, September 7, EUR/USD traded at 0.9898, well below the 0.9950-0.9960 range it held at the beginning of the week. The 20-period SMA, which was tested by the pair on Tuesday, became the pair's resistance afterwards.

EUR/USD has suffered losses and fell from the key psychological level of 0.9900 towards the recent low at 0.9880. The pair would remain below the parity level for the next three months, experts say. The situation could change only if the euro breaks its current long-term downtrend. However, this scenario remains in doubt, even if the ECB hikes interest rates by 75 bps.

Preliminary outlooks suggest that EUR/USD would continue to trade at around 1.0200 in 6 months and around 1.0600 in a year. In this scenario, the euro would gain 3-7%, analysts say. Since the beginning of 2022, EUR lost 13% and could fall even lower.

The outlook on USD is more optimistic - the US dollar could maintain its position and extend its upside potential, analysts say. USD has found support in rising interest rates in the US and rapid growth of the economy. Furthermore, there is continuing demand for US dollar as a safe-haven asset among investors.

Since the beginning of 2022, the US dollar has jumped by 15% against other currencies and hit a new 20-year high on Tuesday, September 6. Positive services PMI data indicates that the US economy is far from recession, pushing up the yield of US Treasury bonds and giving support to USD.

While the US dollar is more likely to move up than down, the CPI data for August, which will be published next week, could weigh down on the US currency. Preliminary outlooks suggest that inflation could begin to slow down, while core inflation could be more persistent that previously anticipated. This situation could leave no chance for the euro to recover against the dollar. However, the US dollar could retreat significantly after 2022 and would face strong competition from the European currency.

Currently, investors expect the Federal Reserve to raise interest rates once again as USD continues to rise. If macroeconomic data turn out to be strong enough, a 75 bps hike is almost guaranteed, analysts say. According to an outlook by currency strategists at Morgan Stanley, the US regulator will hike interest rates at its meeting in September to push down inflation and give support to the US dollar. Economists note high rates of economic growth and ever-increasing inflation, which force the Fed to move interest rates upwards. Thomas Barkin, the president of the Fed Reserve Bank of Richmond, stated that the US central bank must keep interest rates high enough to restrict economic activity and bring soaring inflation down.

According to the latest data, analysts are expecting a 72% chance that the Fed will raise interest rates by 75 basis points in September. The Federal Reserve will publish its Beige Book report on economic conditions in the US later today. This report could impact the further dynamics of EUR/USD.