10.02.202109:21 Forex Analysis & Reviews: Will inflation stimulate the US dollar's fall?

There is some agitation on Wednesday in anticipation of the release of inflation data in the United States. Experts are worried that the rising US inflation could negatively affect the national currency.

On the morning of February 10, the US currency remained stable against other global currencies. Experts attribute this relative calmness to the expectation of data on inflation in the United States. Analysts believe that this is a key factor for the markets that can dramatically change the current situation. These indicators are considered to be the most important for the dollar's further dynamics.

Several experts say that inflation is set to accelerate the dollar's decline. This is happening amid the rising inflation expectations in the United States, which makes the national currency cheaper. Currently, the level of these expectations is equal to 2.31%. However, analysts warn that the potential calculations are very different from the real ones. For such an important indicator as the US consumer price index, the real value is 1.6%, and the estimated value is 1.5%. Experts admit that consumer prices in America increased by 1.5%, while the inflation rate was 0.3% in January 2021.

But when comparing the inflation rate in the US and the Eurozone, experts conclude that the strengthening of this indicator is possible in the latter. This is facilitated by the relatively positive sentiment regarding Germany's macroeconomic reports. Today, the market expects the final data on January inflation from the Federal Statistical Bureau of Germany. According to economists' calculations, consumer prices in the country increased by 1% year-on-year, and the inflation rate for the month reached 0.8%. It should be noted that it is important for analysts to compare the level of inflation in the US and the EU, because where inflation is higher, the national currency becomes cheaper.

The recently adopted $ 1.9 trillion stimulus package could be a strong driver for the USD decline. There are continued discussions in the US about this measure to support the national economy. According to the head of state Joe Biden and the Democratic Party, weak economic stimulus will slow down its recovery after COVID-19. However, experts note that the new stimulus package has pros and cons. On the one hand, this measure helps economic growth in the United States by supporting the USD exchange rate, and on the other, it can lead to an explosion of inflation, which will affect the dynamics of the greenback.

The current macro statistics from the euro area, primarily from Germany, can significantly affect the euro rate. However, experts believe that a possible positive result will not solve the problems of this currency. At the same time, the prolonged weakening of the US dollar is unlikely to help the Euro, and the latter's chances of significant growth are close to zero. This is facilitated by the unstable economic situation in the Eurozone in view of long recovery after COVID-19.

According to experts, the European currency in the EUR/USD pair may begin to decline after the US dollar. This morning, the EUR/USD pair was trading near the level of 1.2125, trying to further rise, but with varying success.

Despite a number of negative forecasts for the US currency, TD Securities analysts are sure that the US economy will recover faster against other countries. If this scenario is implemented in the near future, the US dollar will manage to overcome most currencies and regain its lost leadership positions.