16.11.202208:57 Forex Analysis & Reviews: Dollar competes with the euro, taking away the laurels of the winner with it

The US currency once again surprised the markets by soaring sharply on geopolitical news. A day earlier, the euro took the victory from the dollar, demonstrating strong growth after positive macro data on the eurozone economy. However, a few hours later, the greenback strengthened its position against an unfavorable external background.

On Tuesday evening, November 15, experts recorded a sharp decline in risky assets and a simultaneous rise in the price of securities of American defense companies along with the dollar. The reason is the explosion of two rockets on the territory of Poland, in the Lublin Voivodeship, on the border with Ukraine. In the current situation, the Polish authorities, namely Prime Minister Mateusz Morawiecki, convened an urgent meeting of the Government's Security and Defense Committee. Unfavorable news related to the fall of missiles on the territory of Poland increased the flight of investors from risk to more reliable defensive assets, in particular in USD.

On Wednesday morning, November 16, the US currency began with a steady rise against other world currencies. Expectations of further tightening of the Federal Reserve's monetary policy also contributed to the dollar's growth. The EUR/USD pair started the new day at 1.0377, gradually moving towards new peaks.

A day earlier, the euro was "on the horse", which has now moved a little into the shadows. On Tuesday evening, the single currency showed growth, inspired by positive reports on the region's economy. Against this background, the euro rose to 1.0413, safely leaving the red zone. At some point, the euro peaked at 1.0477, forcing the dollar to capitulate. However, the euro's victory was short-lived. The gGreenback, taking advantage of the geopolitical turmoil, received a powerful impetus for growth.

On Tuesday, traders and investors recorded a number of improvements in the eurozone economy, based on Eurostat data. According to the ministry's estimates, in September the deficit of the foreign trade balance in the region decreased to €34.4 billion from the previous €50.9 billion. At the same time, analysts expected a deficit of €44.5 billion. In addition, the index of economic expectations of the eurozone has grown significantly. According to Eurostat data, in the last quarter, the GDP of 19 eurozone countries increased by 2.1% year-on-year and by 0.2% quarter-on-quarter.

After the sudden sharp growth of the euro, experts do not rule out its further rise to 1.1000. According to analysts of DNB Bank, the current changes in the foreign exchange market indicate the gradual end of the dollar rally. At the beginning of this week, the EUR/USD pair added 1.10%, and this is not the limit. In such a situation, investors expect the Fed to slow down the cycle of raising interest rates, believing that inflation in the United States has peaked. However, DNB analysts warn the markets against euphoria, warning of a possible decline in the EUR/USD pair to 0.9500. According to currency strategists, the pair will be in this range in the next three months. In the event of a fall in global stock markets and the onset of a recession in the US economy, the EUR/USD pair will again go below the parity level, experts believe. At the same time, the central bank will continue to raise interest rates to combat rising inflation, the DNB summarizes.

Currently, market participants are assessing the prospects for further monetary policy of the Fed. At the same time, 85% of analysts expect an interest rate hike in December by 0.5 percentage points, to 4.25-4.5% per annum. In the current situation, global stock markets do not rule out a reversal in the Fed's current strategy. Many traders and investors are confident that in 2023 the central bank will complete its cycle of rate hikes. At the same time, analysts admit the onset of a fairly strong recession in the United States, which will provide significant support to the safe haven dollar.