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The dollar is moving steadily higher as if it is trying to prove its leading position which was called into question last year. In the first quarter, it advanced by 5% against the basket of its rivals. The growth is impressive and suggests that it is too early to give up on the greenback.
The American currency is now confidently moving forward, and so far there is no doubt that this movement will be stopped. All factors indicate strong upside potential of the US currency, at least for now. What will happen if the dollar reacts to these factors?
Since the beginning of the year, there have been three main drivers for the US dollar. To stimulate the economy, Washington borrowed money from the markets. The approval of the relief package together with a large-scale vaccination program has improved the country's recovery prospects and made the US dollar more attractive. The US Federal Reserve has also played its role by curtailing the crisis measures implemented a year ago. The regulator did not undermine the optimistic expectations of the market.
Yesterday, Joe Biden announced another stimulus program. Consequently, the volume of borrowings will be increased in the near future. On the one hand, the US dollar will develop another upside momentum. On the other hand, there may be negative consequences. This will largely depend on how the Americans intend to pay off their debts. Recently, Biden has mentioned the resumption of the corporate tax and stricter rules for tax collection.
The US dollar is highly likely to develop a strong uptrend in the near term. The current ascending wave may easily bring the US dollar index to the level of 95.00. That is, the greenback will rise by another 1.5%. At the same time, traders need to be ready for the opposite scenario if USD depreciates against the basket of other majors. By the end of the year, it may return below 90.00 and in 2022 it may drop to 80.00.
In this scenario, the euro will decline to 1.1500 against the US dollar. At the end of the year, it may rebound to 1.2300 and rise to 1.4000 in 2022. In this case, the pound should first drop to 1.3500, and then the GBP/USD pair will reverse to the upside. In the most optimistic scenario, it will eventually reach 1.5000.
The EUR/USD pair is showing signs of recovery today. However, it is still holding below the 1.1780 resistance level. Therefore, the bearish trend remains relevant. The target for the euro sellers may be the level of 1.1605.
The pound closed the trading session on Wednesday with gains, having recovered to the level of 1.3770. Today, it opened the trade in negative territory. GBP/USD pair is also staying under bearish pressure which could push the pair towards 1.3670 and 1.3580.
Despite today's negative start, traders have a positive outlook for the pound. Thus, today the pair made an attempt to change its direction. If the pound bulls manage to break through the resistance level of 1.3840, the downtrend will be canceled.
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