EUR/USD: dollar may resume strengthening


Despite the weak macro statistics for the Eurozone, published on Monday, the euro strengthened against the dollar, and the EUR / USD pair rose at the beginning of today's European session to the 1.2079 mark, the highest since March 4.

As reported yesterday in Eurostat, the volume of production in the construction sector of the Eurozone decreased by 2.1% (after growth by 0.8% in January and against the forecast of +0.2%). In annual terms, the indicator decreased even more (-5.8% from –2.6% in February).

Investors are showing restrained optimism both towards the European economy, which is facing an unexpectedly strong third wave of growth in the incidence of coronavirus, and towards the global economy as a whole, despite the fact that the United States and the United Kingdom are ready to ease quarantine restrictions.

The US dollar continues to weaken against most of its main competitors, which can be attributed to the decline in US Treasury yields, retreating from their record highs. However, the decline in the dollar and the growth of the EUR / USD pair may soon stop, although it still maintains positive dynamics, trading in the zone above key support levels.

The factors that can become the drivers of the dollar strengthening may be the resumption of growth in the yield of US government bonds, as well as the acceleration of inflation in the US on the eve of the April FRS meeting. It will take place on April 27 - 28.

It is widely expected that the parameters of the current monetary policy will remain the same, but it is possible that the Fed's leadership may sound concerns about the growing inflation in the US, which market participants may regard as a signal to reduce short positions in the dollar.

Although, recently, investors have stopped noticing positive macro statistics coming from the US in relation to the dollar, focusing more on the continued growth of US stock indices, the ongoing recovery of the US economy may support inflationary expectations. Further strengthening of inflationary expectations in the US may support the assumptions about the Fed's rate hike, which is a positive factor for the USD.

Investors are counting on the acceleration of the American economy in the near future, including due to expectations of new stimulus measures from the White House. Thus, market participants expect that US President Joe Biden will soon present a new plan to modernize infrastructure worth at least $ 2 billion, which, in turn, will spur the growth of inflationary expectations in the United States.

Meanwhile, the yield on 10-year US Treasuries rose from 1.528%, last week's low, to 1.631% on Tuesday. Many investors believe that the growth of the indicator, which was interrupted not so long ago, is a temporary phenomenon. They expect yields to continue to rise, which is a factor for strengthening the dollar.