The euro continues to recover against the US dollar. On Tuesday, the quotes reached the level of 1.1835.
Investors are preparing for the Fed meeting, so the risk appetite is generally decreasing. Against a basket of its competitors, the dollar index was trading at 92.82, not far from the highest since the beginning of April. The US currency has grown by more than 4% since the lows of 2021. The yield on US Treasury bonds forced investors to reduce their short bets on the dollar.
According to the latest data from the Commodity Futures Commission, net long positions on the dollar last week reached the highest level in more than 14 months. This is a significant shift compared to the first quarter of 2021, when hedge funds increased their selling bets with the expectation that record low interest rates in the United States will hold back the dollar. The US currency may grow even stronger if the Fed tightens its position on the normalization of monetary policy after a two-day meeting this evening, although the market consensus considers this unlikely.
MUFG strategists said that the short duration of the recession could lead to a faster change in monetary policy in the United States. Even a hint that a reduction in the quantitative easing program may begin in the near future will raise the dollar exchange rate. However, it is equally important to follow the Fed's thoughts about a sharp but temporary jump in consumer prices. Fed Chairman Jerome Powell is likely to show more patience with inflation while domestic economic conditions still point to a weak labor market.
The forecast expects a decline in the euro/dollar exchange rate to the levels of 1.1820, 1.1800 and 1.1770.