The growth of the US dollar has been going on for more than a year, and this strengthening is due to the widening of credit spreads. However, today experts identify a number of factors, the combination of which can turn the US currency rate downward in the coming weeks. Recall that since the beginning of 2021, the EUR/USD pair has declined from $1.22 to the current $0.98, and the yield spread of 2-year US and German government bonds has increased from 0.80% to the current 2.55%. This widening took place against the background of expectations of an increasingly large-scale rate hike in the United States. However, in the middle of last month, the expectations of the derivatives market for the level of the federal funds rate at the end of the year peaked at 3.78%, after which they stabilized and dropped to the current 3.36%. In addition, the market began to put into prices the expectation of easing the monetary policy of the US Federal Reserve in the spring of 2023. Experts note that the market seems to have already taken into account the entire cycle of Fed rate hikes in prices. At the same time, large speculators continue to aggressively bet on the further growth of the dollar, despite the fact that representatives of the regulator make it clear that they do not plan to increase the step of raising rates to 1.00%. The likely reduction of credit spreads may lead to the forced closure of long positions on the dollar by large speculators, which will lead to a new wave of depreciation of the dollar in the coming weeks. As for the next meeting of the US Federal Reserve, the rate is likely to be increased by 0.75%, which is also already fully taken into account in prices. A 1% rate hike will surprise the markets and provide considerable support to the dollar.
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