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Experts agree that this year has been the best for the US dollar, which has not experienced such victory over the past seven years. This currency enters the upcoming 2022 with a reserve of optimism, which it will retain for a long time.
The US currency completed the current year with growth against most of the key currencies. The dollar index, which reflects the USD exchange rate against a basket of six leading currencies, increased 6.8% over the year. Such a sharp growth was shown only by the Canadian dollar due to the increase in oil prices by 50% over the year. According to Saxo Bank analysts, the sustained recovery of the US and Canadian economies will lead to an early rate hike from both central banks. Saxo Bank also believes that the consequence of the Fed’s aggressive policy will be the tightening of conditions in the financial markets. If this scenario occurs, the US dollar will outperform other currencies as a safe haven asset.
Experts said that this year was the best for the US currency for the last seven years. The US dollar has shown high efficiency, often holding the leading positions. The surge in inflation, which has not been observed in the United States over the past 40 years, has become the driver of this growth.
At the same time, the US dollar was supported by record investments in it by large hedge funds. This contributed to the rapid growth of the US currency. Moreover, experts consider the doubling of the pace of curtailing the Federal Reserve’s asset repurchase program to be the catalyst for the recovery of this currency. The high interest rates and the course for further tightening of the monetary policy provide invaluable support to the US currency.
Amid growing concerns about inflation, the regulator may raise the key rate four times instead of the planned three in 2022. According to experts, a 1% rate hike will start to significantly affect economic activity. Experts expect the first Fed rate increase in March, with a 54% probability. By the end of 2022, the probability of two rate hikes is 90%, and a threefold increase is 66%.
Analysts are sure that the inertia towards the strengthening of the US dollar will remain at the beginning of the new year. At the same time, the European currency will remain in the range of 1.1000-1.1500. The reasons for this are the Fed’s curtailment of stimulus and the ECB’s “dovish” strategy in relation to monetary policy. On Friday morning, the EUR/USD pair was trading at the level of 1.1324, slightly losing its position. However, experts expect the euro’s long-term downward trend to reverse by mid-2022.
ING’s currency strategists are more confident in the growth of the US dollar more than the euro. The bank believes that the tightening of monetary policy by the Fed will cause the US dollar to rise. However, this sharp appreciation is constrained by the fact that the markets have put two to three rate hikes in their value. At the same time, analysts remind us that a fourfold rise is not excluded. Morgan Stanley currency strategists believe that in the second half of 2022, the US currency will partially plunge. However, most experts adhere to positive forecasts regarding the US currency.
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