The index of the US currency is at levels last seen 20 years ago, and the rate of the EUR/USD pair is literally rubbing against the 1.00 level. The USD thus does not give up, remaining the strongest currency among the world's major currencies.
The US Dollar Index on Tuesday morning is already above the level of 108 points. Investors can still report demand for the safe-haven currency at a time of high economic uncertainty. Moreover, the U.S. economy can handle an impending slowdown or recession better than the economies of other countries, especially developing ones. In addition, the dollar is used for international settlements, and an increasing number of countries are experiencing trade balance problems and are beginning to import goods of increasing value with a falling ratio of that value to exports, which could further drive demand for the USD.
Expectations are also not diminishing that the U.S. Federal Reserve will steadily raise the U.S. dollar interest rate in the near term after good labor market data and with expectations of again the highest inflation reading in more than 40 years in the U.S., which could happen later in the week. Raphael Bostic, president of the Atlanta Fed branch, said Monday that the pace of price increases justifies another 75 basis point rate hike later this month. Meanwhile, Esther George, president of the Kansas City Fed, who was an opponent of a 75 basis point hike last month, warned against sudden changes in rates that could hurt the economy and financial markets.
According to the New York Fed's survey, median inflation expectations for the year ahead rose to 6.8 percent in June from 6.6 percent in May, a new record for the series. In contrast, median inflation expectations for the next three years fell to 3.6 percent from 3.9 percent. The market's measure of inflation expectations over a five-year period also appears to have fallen from its April peak of 2.67 percent to 2.08 percent. This may show that 2022 will be the year with a peak in interest rates and inflation, after which both inflation and interest rates would be expected to fall.
At 07:30 on Tuesday, the EUR/USD pair price on the Conotoxia platform was above the parity level of 1.00, having remained there since the overnight hours. It seems that the entire investment world is looking at this level right now and what could possibly happen if it were broken.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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