Many experts are sure that the Euro will bypass the US dollar in the long run. At the moment, the euro is winning, although it sometimes yields to the dollar in the battle on the global financial field.
Several economists say that the inflation rate significantly affects euro’s further dynamics. This problem was mentioned earlier by the ECB Council. European monetary authorities were alarmed by the inflationary pressure on the EUR exchange rate, as well as the reverse process. Experts emphasize the relationship between the dynamics of the Euro and the inflation level, believing that its growth carries risks for itself and for subsequent economic rise in the Euro area.
Some analysts also believe that the current economic problems develop from low inflation. In August 2020, this indicator went into a negative area, amounting to -0.2%. Experts do not exclude that the current inflation level will be in the “red” zone until the end of the year. Meanwhile, euro’s growth suppresses inflation expectations, so experts warn that it can provoke deflation. To stabilize the situation, the ECB is ready to apply any necessary measures, including large-scale monetary stimulus, as well as adjust its strategy considering the existing problems. The regulator does not rule out revaluation of existing economic instruments necessary to accelerate inflation and restore the economy as soon as possible.
Unlike the euro, the USD is not active. Moreover, it was slightly depressed, ending the past week on a minor note. It fell below key support levels amid improving risk sentiment. This was supported by expectations about the adoption of large-scale stimulus measures and the possible victory of Joe Biden in the upcoming US presidential election. If Joe Biden wins, the market expects an impressive cash inflow, but leaves out such important points as increasing business taxes and high personal incomes. The current situation negatively affects the dynamics of the US currency, pushing it from its previous peaks and forcing it to give way to the Euro.
Yesterday, the EUR/USD pair rose above 1.1800. Its current state is influenced by the possibility of introducing stimulus measures in the US and similar expectations from the ECB. Today, this classic pair was trading near the range of 1.1785-1.1786, while experts still consider increased pressure from the “bears” on the dollar, regardless of the results of US presidential elections.
After recovering its position and breaking the level of 1.1800, the euro is confidently gaining impulse and it is not going to stop, as it receives support from the growing probability of monetary stimulus to the economy. Major currency strategists, including those at Danske Bank, expect it to continue to grow to 1.2000 over the next six months. They believe that the economic recovery in the USA and Europe will continue next year. Due to this, financial flows to the assets of the “safe haven”, including in USD, will decline. Against this background, analysts conclude that the dollar may fall again, while the euro may get a chance for an upward trend.
The material has been provided by InstaForex Company – www.instaforex.com
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