The US dollar maintains a relative balance in anticipation of the release of data on the current inflation rate. Analysts believe that only serious changes in inflation can affect the indicated currency.
On January 13, the market expects information on US inflation. This indicator was previously considered one of the key ones, but currently, traders and investors are more closely monitoring Nonfarms. At the same time, Fed Chairman Jerome Powell, emphasized that the regulator allows inflation to rise above 2%. It is really growing, which is now at 1.6%. This coincides with experts' forecasts and market expectations.
Many analysts do not exclude the acceleration of inflation in the United States. Based on five-year government bond spreads, the current expected inflation rate is 2.06%. Experts think that the US dollar's current weakening is due to the growing inflationary expectations. Economists admit that annual inflation will accelerate to 1.3% from the previous 1.2%. But if consumer inflation slows down, Treasury yields will decline and in turn, the USD will be able to strengthen. Experts believe that the Fed's "dovish" rhetoric, which provides for easing monetary policy, is negative for the national currency.
Stephen Roach, a Yale professor and former Chief Economist at Morgan Stanley, agrees with this. He is sure that the large-scale stimulus expected from the US Congress could provoke an increase in inflation. However, the expert supports the need to increase fiscal stimulus in the United States due to the tense economic situation caused by COVID-19. According to S. Roach, the current coronavirus restrictions ended the V-shaped recovery of the US economy. This can result in a dollar's collapse by 20% in 2021 amid the growing deficit of the US state budget and the policy of near-zero rates, which the Fed adheres to.
The current situation weakens the position of the US dollar. Earlier, experts recorded its slight growth, but it has now stopped. This morning, the EUR/USD pair is trading near the range of 1.2208-1.2209, which was previously moving in the range of 1.2150 - 1.2210. So, analysts allow further decline of the classic pair.
According to experts, the expected publication of data on US inflation will be decisive for the US currency, which will set the vector for its further dynamics. It is possible that the current inflation data will strengthen the existing trend for the weakening of the dollar.