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The US currency is firmly in the leading positions, once again confirming its strength. At the same time, experts fear that the fall of the euro in the EUR/USD pair, which began last week, will continue.
At the end of the past week, the greenback demonstrated a reduction in price in relation to the euro, which continued to weaken. Disappointing reports on the US industrial sector turned out to be the driver of the USD decline. According to current data, the index of business activity in the American industry (ISM Manufacturing) fell to 53% in June from 56.1% in May.
Against this background, the European currency sank significantly against the American one. The catalyst for the fall of the EUR was a large-scale acceleration of annual inflation in 19 eurozone countries. According to reports, inflation made a dizzying turn in June, rising to 8.6% from the previous 8.1%. According to experts, this is another record rise, which increases the likelihood of a tightening of the monetary policy by the European Central Bank.
Many market participants are confident that the ECB may raise the rate again at the July meeting. The reason is the prolonged acceleration of inflation and the risk of its increase. In the current situation, the ECB is ready to revise its forecast of economic growth downward. Against this background, fears about stagflation in the eurozone are growing.
Earlier, ECB President Christine Lagarde expressed concerns about the recession, but hoped for a favorable outcome for the eurozone economy.
However, a number of negative factors, such as galloping inflation, low economic growth and a prolonged energy crisis, increase the central bank's concern about a significant downturn in the European economy.
Against this background, the greenback has noticeably strengthened, once again "stepping on the heels" of the euro. On the morning of Monday, July 4, the EUR/USD pair was trading at 1.0433, approaching 1.0349 – a five-year low reached in May. According to analysts, such actions mean a flight to the dollar on the part of investors.
Some market participants prefer to invest in USD amid unfavorable prospects for the global economy. At the same time, experts record a number of alarming signs indicating a weakening of the US economy. It should be noted that personal spending in the United States decreased to 0.3% in June from the previous 0.6%. At the same time, the inflation rate is gradually decreasing, and the labor market in the United States is showing steady growth. And so the markets expect the Federal Reserve to continue fighting high inflation and tightening monetary policy.
At the beginning of this week, risky currencies were trading near multi-year lows against the greenback, while the euro remained under pressure. Investors prefer safe haven assets, primarily the dollar. Powerful financial injections supported the latter, allowing it to strengthen against the currencies of exporting countries. Additional support for the USD was provided by the deterioration of the prospects for the global economy. Currently, the greenback is held at high levels, and the dollar index has consolidated near 105,100, approaching the high in the last 20 years. The growth of the US currency was not prevented by the doubts of market participants about the next rise in interest rates in the United States.
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