empty
03.07.2023 09:51 AM
USD weakens again

This image is no longer relevant

The US currency once again faces a potential decline. However, the US dollar is resisting and often succeeding. Meanwhile, the situation is rarely favorable for the European currency. It is difficult for the euro to maintain a prolonged and confident growth that could fundamentally change the balance of power in the EUR/USD pair.

At the end of last week, the EUR/USD pair demonstrated another decline, which continued into the beginning of the following week. After the inflation data for the Eurozone was published last week, the European currency noticeably dropped. According to recent reports, inflationary pressures in the region have decreased, but this news turned out to be negative for the euro. In the first month of summer, Germany's unemployment rate increased to 5.7% from the previous 5.6%. Analysts were expecting the rate to remain at the May level of 5.6%.

In the current situation, the EUR/USD pair has given up some of its positions and headed downward. However, the pair is trying to overcome the downward spiral but without success. On Monday morning, July 3, the EUR/USD pair was trading at 1.0893, losing a significant portion of its gains. Nevertheless, experts anticipate a recovery for the pair in the medium term

This image is no longer relevant

The US currency also experienced a slight decline, but it was much smaller compared to the euro. Since the beginning of the second quarter of 2023, the European currency has slightly appreciated against the American currency by 0.7%, and since the beginning of this year, it has surged by 2.1%. As for the US dollar index (USDX), it increased by 0.4% from April to June but declined by 0.6% since the beginning of 2023.

According to analysts, the current month will be quite volatile for investors, as several important events are expected in the market. Traders and analysts are focused on the employment report in the US, inflation data, the Fed meeting, and the start of corporate earnings releases for the second quarter of 2023.

On Wednesday, July 5, the markets anticipate the release of the minutes from the Federal Reserve's June meeting, during which the central bank maintained the interest rate at 5% to 5.25% per annum. Against this backdrop, the majority of experts (87.4%) expect another 25 basis points rate hike by the end of July.

Another important report will be the June employment report, which the US Department of Labor will publish on Friday, July 7. This is one of the key indicators for the US Federal Reserve, which the central bank relies on when making decisions about further monetary policy. Currently, most forecasts anticipate the continued high pace of employment growth in the US, despite the recent slowing down.

According to preliminary estimates, the unemployment rate in the US is expected to remain at 3.7% in June, the same as in May. Meanwhile, the number of non-farm payrolls increased by 225,000. In May, the growth was 339,000.

The current consensus forecast expects an increase in the number of jobs in the US economy by 200,000, following the growth of 339,000 in May. According to forecasts, the unemployment rate in the US will not exceed 3.7%. Currently, this indicator remains near a 53-year low of 3.4%.

The next report that will determine the US dollar's movement and the state of the US economy will be the inflation report for June, which will be released next Wednesday, July 12. According to experts, the current data indicates that overall and core CPI are decreasing very slowly. Against this backdrop, the Fed has to combat runaway inflation.

Currently, there are no official forecasts for the overall and core CPI. According to preliminary calculations, the annual CPI will range from 3.6% to 3.8%. As for the core CPI, which excludes food and energy prices, it will be 5% to 5.2%. The central bank closely monitors the core CPI, which, in their opinion, most accurately reflects future inflation.

The third crucial report for the US economy and the American currency will be the Federal Reserve's decision on interest rates, with a meeting scheduled for the end of this month, on July 26. Currently, financial markets assess the likelihood of a 25 basis point rate hike at 87%, and the likelihood of rates staying unchanged at 13%.

Against this backdrop, the greenback will face certain difficulties. The currency strategists at TD Securities believe that USD will decline in the short term but then recover. The end of the Federal Reserve's rate hike cycle is a bearish factor for the dollar. This negative impact persists for the first few months. In the first two months, the greenback typically drops by 2%. It is possible that in the second half of 2023, the US dollar will trade at lower levels than it is now, according to the bank.

According to some analysts, the main reason for the potential decline in the EUR/USD pair in the coming months will be the increase in US Treasury yields. Adding fuel to the fire is the debt issuance cycle initiated by the US Treasury. According to the department's plans, in the second quarter of 2023, the US Treasury plans to issue $726 billion in government debt, and in the third quarter, an additional $733 billion. In total, this will amount to $1.459 trillion.

Preliminary calculations indicate that this amount will not be completely withdrawn from the system. Over time, this money will return to the US economy through government spending. It is expected that the US Treasury will only withdraw funds from the economy that remain in its accounts at the Federal Reserve (cash balance). According to the latest data, as of June 2023, the amount of funds on its balance at the Federal Reserve was $408 billion.

However, the pace of US debt issuance has recently accelerated sharply. Over two weeks, from June 22 to July 6, the Treasury raised $400 billion. This enormous momentary liquidity withdrawal from the system is emphasized by experts. Against this backdrop, there was a sharp surge in USD. As a result, there is a shortage of US dollars in the market, as evidenced by the rise in short-term yields in the US.

According to specialists, liquidity withdrawal through government debt issuance triggers a dollar shortage. On the other hand, it contributes to the positive dynamics of the greenback, allowing investors to buy dollar-denominated assets. Meanwhile, the Federal Reserve reduces dollar liquidity in the market, raising rates and implementing a policy of quantitative tightening. In such a situation, the American currency has significant potential for substantial strengthening.

Larisa Kolesnikova,
Analytical expert of InstaForex
© 2007-2025
Summary
Urgency
Analytic
l Kolesnikova
Start trade
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

US stocks climb: S&P 500 hits sixth record, chipmakers rally

S&P 500 notched its sixth record. Nasdaq posted six best sessions. Chip stocks surged. PepsiCo and United Airlines climbed. Indices rose: Dow Jones up 0.52%, S&P 500 up 0.54%, Nasdaq

12:47 2025-07-18 UTC+2

US Market News Digest for July 18

The S&P 500, Nasdaq, and Dow Jones closed higher by 0.54%, 0.75%, and 0.52%, respectively, amid strong macroeconomic data. Released figures on retail sales and employment reinforced investor confidence

Ekaterina Kiseleva 12:31 2025-07-18 UTC+2

US indices rush into summer: S&P 500 hits sixth record high and chip stocks soar

The S&P 500 set its sixth record high since June 27. The Nasdaq has posted six best results in the past seven sessions. Chip stocks jumped after TSMC's record quarterly

Thomas Frank 10:43 2025-07-18 UTC+2

US Market News Digest for July 17, 2025

US stock indices closed the day with moderate gains, driven by speculation over Jerome Powell's potential resignation as Chairman of the Federal Reserve, causing short-term volatility in the markets. Investors

Ekaterina Kiseleva 12:36 2025-07-17 UTC+2

Powell's resignation? Markets recover, Nasdaq hits new record

Markets recover from brief sell-off amid Powell's resignation Indices close higher: Dow Jones - 0.53%, S&P 500 - 0.32%, Nasdaq - 0.26% Nasdaq hits fifth all-time high in six sessions

Thomas Frank 11:14 2025-07-17 UTC+2

Nasdaq Storms Highs: Nvidia Soars, Citigroup Closes at 2008 High

Nasdaq Closes at Fourth Record High in Five Sessions Nvidia Surges as China Resume Chip Sales in H1 2020 Citigroup Ends at 2008 Highest After Q2 Profit Beat JP Morgan

Thomas Frank 08:02 2025-07-16 UTC+2

US Market News Digest for July 15

Gilead Sciences stock is showing signs of growth after a strong rebound from the support line, with a projected rise toward the March 10 high of 119.89. Meanwhile, Baidu continues

Ekaterina Kiseleva 14:16 2025-07-15 UTC+2

Bitcoin Breaks $120K, Nasdaq to New Highs: Markets Eager for More Drive

Tuesday Kicks Off Key Economic Data Series and Earnings Season Nasdaq Posts Seventh Record Close Since June 27 Crypto Stocks Jump as Bitcoin Climbs to $120K Waters Merge with Becton

Thomas Frank 10:18 2025-07-15 UTC+2

Markets on edge: Trump targets EU, inflation and China data in focus

Wall Street and European equity indices opened the week in the red, following losses across Asian markets on Monday. Investors are reacting to the latest bout of trade war rhetoric

14:48 2025-07-14 UTC+2

US Market News Digest for July 14

Donald Trump announced 30% tariffs on goods from the EU and Mexico. The initial market reaction was negative, but the S&P 500 partially rebounded thanks to gains in large-cap stocks

Ekaterina Kiseleva 14:36 2025-07-14 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.