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GBP/USD: "Disappointing" pound at the peak of undervaluation



There is a paradoxical situation in the dynamics of the British currency. The pound, which is teetering on the brink of failure and periodically tests low levels, is considered by many experts to be undervalued. This factor helps the pound "float" out of the deepest price drops.

This week, the British currency was actively declining against the USD, trying to develop a bearish rally. As a result, the pound traded near two-year lows, stepping over the 1.1700 support level from time to time. GBP/USD managed to move towards consolidation later this week, breaking a four-day streak of declines and climbing above 1.1800. However, in the short term, pound bears will lose out due to lack of appetite for risk. At the same time, many investors prefer selling GBP, fearing the strengthening of energy problems in the country.

After the release of reports on inflation in the UK, short positions on the British currency intensified. According to reports for July, the consumer price index in the country reached 10.1%, being the highest since 1982. Citi Bank analysts estimate that inflation in the UK will soar to a record 18.6% in January 2023. The reason is a significant increase in prices for blue fuel. According to experts, British inflation will be the highest since the 1979 oil crisis, when its level corresponded to 17.8%. Under such a scenario, the purchasing power of the population will drop sharply. This will trigger a further economic downturn, hurting household finances in the UK.

However, many experts believe that Citi Bank's forecast is extreme, and even the intensification of the energy crisis in the country is unlikely to lead to a sharp round of inflation. This scenario is at odds with the baseline consensus forecast, which assumes inflation to rise to 11.9%, and the Bank of England's estimate (which assumes inflation to rise to 13%). The latter option is quite possible if the new British prime minister introduces another fiscal stimulus.

The current situation has a negative impact on the pound's dynamics, which remains under pressure. The GBP/USD pair cruised near 1.1835 on the morning of Thursday, August 25, gaining momentum. The pound is looking to recoup previous losses with varying degrees of success.



Additional pressure on the dynamics of the GBP has increased fears about the onset of a recession in the UK in the third quarter of this year. In such a scenario, the BoE will have to revise its current monetary policy and slow down the key rate hike. Analysts estimate that the pound is now negatively correlated with interest rates, as the risk of a recession is more important than the potential tightening of monetary policy by the BoE.

On the side of the bears of the British currency - a long-term strengthening of the greenback, which is fueled by the confidence of market players in the further tightening of monetary policy by the Federal Reserve. In addition, investors are convinced that the central bank is set for a significant rate hike in September (by 50-75 bps). The Fed's hawkish stance on this issue will send the dollar to new highs. However, risky assets, including the British currency, will come under pressure. Against this background, experts recommend holding short positions on the GBP/USD pair with 1.1500 as the target.

Currency strategists at the investment bank JPMorgan also adhere to the downward trend against the pound. Analysts expect the pound to fall against the dollar to its lowest level in two years. The reasons are the strengthening of the recession in the UK and the aggravation of the energy crisis due to problems with gas supplies. Against this background, the pound risks falling to 1.1400, the level that was recorded in March 2020.

According to JPMorgan economists, in 2022 the British currency fell by 12% against the US, and this is not the limit. The current situation has made the pound one of the worst G10 currencies in terms of spot returns. However, JP Morgan does not rule out a further recovery of the pound in 2023.

According to experts, risk appetite, the decline in the role of the USD and a fair assessment of the pound stand out among the catalysts for the potential growth of the GBP. Many analysts believe that the pound's undervaluation is a key factor that can prevent its further fall. Over the past 15 years, the deviation of the GBP/USD pair from fair value did not exceed 20%. Currently, the pound is at the peak of undervaluation (by 19.3%). According to experts, the pound may fall even more and remain underestimated for a long time.

According to analysts, the pound retains the potential for further decline, which is possible in the short and medium term planning horizons. The pound may be supported by increased risk appetite and the withdrawal of the greenback from its leading position. However, in light of the strengthening USD, this is unlikely. The pound's appeal for investors is possible amid falling real rates in the US, but now this is unattainable. At current levels, assets denominated in GBP look very cheap for foreign investors, experts conclude.

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Powell vs dollar: will he support or let it float freely?



At the start of the symposium in Jackson Hole, the intrigue about the succeeding dynamics of the dollar increases. Market participants are tensely waiting for what Federal Reserve Chairman Jerome Powell will say and how his speech will affect the current monetary policy and the prospects of the greenback.

At previous symposiums, Powell paid attention to very important issues. In 2020, he announced monetary stimulus for the American economy affected by the COVID-19 pandemic. Last year, the key moment was the statement about the temporary nature of inflation and the curtailment of incentives. Powell's mistake. His stance on inflation has cost the world and American economies dearly, although this situation is fixable.

In 2022, the theme of the event is a reassessment of the current constraints in the economy, namely a large-scale price increase and ways to combat off-scale inflation. Experts are considering two scenarios of Powell's speeches:

1) Basic
The head of the Fed will once again pay attention to extremely high inflation, stressing that the monetary authorities will fight it. The US central bank will do everything possible to maintain economic growth in the United States.

2) Negative
Powell will confirm that the Fed is following the chosen course and is ready to aggressively raise rates to combat inflation. Against this background, the US economy will experience strong pressure. In addition, there may be an increase in yields and a correction in the markets. However, there are no prerequisites for the implementation of the second scenario.

According to experts, Powell's actions will determine the further dynamics of the greenback. Market participants expect that Powell's speech will clarify the immediate prospects of monetary policy. According to analysts, Powell "will try to manage market expectations" while maintaining the hawkish position of the Fed. On Thursday, August 25, at the symposium that began in Jackson Hole, representatives of the Fed confirmed their intention to raise rates and keep them at a high level until inflation weakens. At the same time, investors remain optimistic about the US currency and cautious with a negative bias towards the European one.

The dollar showed confidence this week, gaining momentum after the release of positive macroeconomic data. As a result, in the second quarter of 2022, the US GDP growth rate was revised upward (from -0.9% to -0.6%). At the same time, the number of applications for unemployment benefits decreased more than expected. After the statistics were released, profitability in the US peaked, but then retreated slightly from high levels.

Experts have recorded a steady growth of the greenback over the current year (by 13.5% against a basket of key currencies). The US currency has risen to its highest level in 20 years, while the euro has fallen by about 12% to below parity, which has not been the case for two decades. At the moment, there are many USD bulls on the market betting on its rise. Traders and investors are confident that the dollar has the strength to continue growing thanks to the hawkish attitude of the Fed and inspiring economic indicators in the United States.

Against this background, the European currency is noticeably losing to its American competitor. The energy crisis in Europe and the European Central Bank's unstable stance on raising rates add fuel to the fire. At the same time, most representatives of the central bank support an interest rate hike by 50 bps. However, many investors are deterred by the deteriorating economic prospects of the eurozone and constantly rising inflation. Against this background, the inflationary situation in the United States looks much more stable than on the other side of the ocean.

According to analysts, double-digit inflation in the eurozone is due to the long-term Russian-Ukrainian conflict, which provoked the energy crisis. Economists fear that the euro bloc countries will fall into the so-called "downward spiral of wage and price growth", from which it is difficult to get out. Against this background, long positions on the euro sharply plunged, which was under pressure.

The failures of the European currency play into the hands of the American one, experts emphasize. According to JPMorgan analysts, the greenback was supported not only by "encouraging economic data" on inflation and employment in the United States, but also by the "growing vulnerability" of the European economy. Recall that in July, the consumer price index in the United States rose by 8.5% in annual terms. At the same time, the unexpected increase in the number of jobs reduced market fears about the onset of a recession.

The US currency has received strong support thanks to the Fed's aggressive rate hike. According to investment analysts at U.S. Bank Wealth Management, this trend will continue in the near future. Against this background, the EUR/USD pair maintains a bearish trend, and the euro still looks vulnerable. Experts note the growing downside risks in relation to the euro.

In the short term, the EUR/USD pair is able to test the parity level again. The euro is still showing weakening, having failed to hold the 1.0000 mark. According to experts, the recovery above the level of 1.0030 will support the single currency. However, now it is rapidly sinking. The EUR/USD pair was near 0.9963 on the morning of Friday, August 26. Currently, experts consider the 0.9950 mark to be the support line, the breakdown of which will pull the pair to the low level of 0.9900.



Earlier, currency strategists at Capital Economics announced a prolonged period of the euro's weakness amid deteriorating economic conditions in the eurozone. Against this background, the dollar has every chance of rising, as markets expect the Fed to raise rates again in September. The implementation of such a scenario will increase pressure on the euro. However, any signals from the head of the central bank that the Fed recognizes the stabilization of the inflation rate will allow the markets to interpret what has been said in favor of easing the monetary policy. Misinterpretation of Powell's statements can shake the dollar's position and help the short-term recovery of the EUR/USD pair, experts believe.

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JPY is not a tenant. Powell and Kuroda signed the yen's death sentence



The Japanese currency is flying down at the start of the new week. The reason for the next peak of the JPY is still the same – the divergence in the monetary policy of the Federal Reserve and the Bank of Japan, which intensified after Jackson Hole.

The main event of last week was the annual Fed symposium in Jackson Hole, and its climax was the speech of the chairman of the US central bank.

As expected, Fed Chairman Jerome Powell stressed his firm intention to fight inflation by further raising interest rates.

– The restoration of price stability will take some time and will require the "decisive" use of the central bank's tools, – the official said during his speech at the forum.

The market interpreted this comment as hawkish, which provoked a sharp jump in the yield of US government bonds and, as a result, a large-scale rally of the dollar.

The DXY index updated its 20-year high on Monday morning, jumping to the level of 109.4.

The Japanese currency suffered the most from the strong greenback. In just a couple of hours, the Japanese fell by almost 0.6% and reached a 5-week low of 138.60.



The current weakness of the JPY is also dictated by the dovish tone of the head of the BOJ. Like his American counterpart, BOJ Governor Haruhiko Kuroda did not present any surprise at the Jackson Hole symposium.

Earlier, Kuroda repeatedly stated that the normalization of monetary policy could cause serious damage to the Japanese economy, which has not yet recovered after the COVID-19 pandemic.

Last Saturday, Kuroda again made it clear that he remains faithful to the ultra-soft course and will continue to adhere to it until "wages and prices will not grow in a stable and sustainable manner."

According to experts, this comment by the head of the BOJ was the last nail in the coffin of the Japanese currency.

In the near future, the yen will not only continue to fall, but also, most likely, will reach another record low against the dollar.

At the time of release, the USD/JPY pair rose above the 139 level and was aimed at the psychologically important 140 mark.

Most currency strategists believe that in the short term, the asset will be able to cross the key barrier that proved impregnable last month.

The probability of such a scenario developing is now very high. In the light of recent speeches by Powell. The markets expect that the wide difference in interest rates between Japan and the United States will remain longer than predicted.

This significantly strengthens the bulls' positions on the USD/JPY pair. According to experts, the upward trend of the asset will continue until at least one of the central banks signals a change in its current monetary rate.

We also draw your attention to the fact that this week the US dollar may receive another strong growth momentum. On Friday, traders expect the release of the US employment report for August.

We also draw your attention to the fact that this week the US dollar may receive another strong growth momentum. On Friday, traders expect the release of the US employment report for August.

If the data from the labor market turns out to be strong, it will push the greenback to new heights and send the yen even deeper to the bottom.

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US stock indicators continue to decline on the statements of the head of the Fed



The value of the Dow Jones Industrial Average by 17:01 GMT + 3 decreased by 0.7% - to 32064.03 points. Standard & Poor's 500 by this time fell by 0.6% - to 4032.75 points. The Nasdaq Composite index has lost 0.7% since the market opened and amounted to 12057.94 points.

On Friday, the fall of the Dow Jones Industrial Average exceeded 1,000 points and became the highest percentage since May 18. The S&P 500 and Nasdaq Composite posted their sharpest declines since June. Powell's remarks, speaking at the annual economics symposium at Jackson Hole on Friday, were more reactive than market participants expected.

Among the 30 components of Dow Jones, only three stocks show an increase in quotations at the beginning of trading: Chevron Corp. - by 1.5%, Boeing Co. - by 0.5% and Verizon Communications Inc. - less than 0.1%.

The drop leaders were Dow Inc., which shed 1.6%, and Travelers Cos. - by 1.5%.

The cost of Apple Inc. down 1%, Microsoft Corp. - by 0.9%, Tesla - by 1.8%.

Sportswear maker Lululemon Athletica tumbled 0.6% after Jefferies downgraded its recommendation to a sell.

Shares of GameStop Corp., the owner of a chain of video game and game electronics stores, are up 0.5%. For 8 previous trades, the value of the company collapsed by 26.7%, it was the longest drop in almost 5 years.

Important for the market this week will be fresh data from the US labor market, the publication of which is scheduled for Friday. According to the average forecast of analysts, unemployment remained at 3.5% in August, while the number of jobs in the country's economy grew by only 300 thousand (after an increase of 528 thousand a month earlier), according to Trading Economics.

The price of bitcoin, which previously fell below the psychologically important mark of $20,000, has again risen above this threshold, which contributes to the increase in stock prices of companies associated with cryptocurrencies. Thus, Coinbase Global papers rise in price by 2.8%, Marathon Digital Holdings Inc. - by 7.3%, Riot Blockchain Inc. - by 4.7%, MicroStrategy Inc. - by 1.9%.

Chinese trading platform Pinduoduo posted a 3.7-fold increase in net income in the second quarter, with adjusted per-share and revenue well above forecasts. The price of the company's American depository shares (ADS) jumped more than 18% on the Nasdaq stock exchange on this news.

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US stocks closed lower, Dow Jones down 0.96%



At the close of the New York Stock Exchange, the Dow Jones fell 0.96% to a one-month low, the S&P 500 fell 1.10% and the NASDAQ Composite index shed 1.12%.

The leading performer among the Dow Jones index components in today's trading was American Express Company, which gained 0.12 points (0.08%) to close at 154.66. Quotes JPMorgan Chase & Co rose by 0.02 points (0.02%), ending trading at 114.41. Nike Inc lost 0.02 points (0.02%) to close at 107.86.

The biggest losers were Dow Inc, which shed 1.49 points or 2.82% to end the session at 51.38. Caterpillar Inc was up 2.52% or 4.84 points to close at 186.94, while Chevron Corp was down 2.44% or 4.01 points to close at 160.62. .

Leading gainers among the S&P 500 index components in today's trading were EPAM Systems Inc, which rose 2.09% to 424.71, Gap Inc, which gained 2.00% to close at 9.67, and Paycom Soft, which rose 1.74% to end the session at 357.29.

The biggest losers were CF Industries Holdings Inc, which shed 6.48% to close at 106.00. Shares of Freeport-McMoran Copper & Gold Inc shed 5.52% to end the session at 29.76. Quotes of The Mosaic Company decreased in price by 4.97% to 57.34.

Leading gainers among the components of the NASDAQ Composite in today's trading were Mobile Global Esports Inc, which rose 103.85% to hit 5.30, Newage Inc, which gained 74.20% to close at 0.36, and also shares of In8bio Inc, which rose 39.39% to end the session at 2.76.

The biggest losers were Amesite Operating Co, which shed 51.45% to close at 0.40. Shares of Baudax Bio Inc lost 43.07% and ended the session at 0.31. Quotes Clarus Therapeutics Holdings Inc fell in price by 36.94% to 0.10.

On the New York Stock Exchange, the number of securities that fell in price (2481) exceeded the number of those that closed in positive territory (647), while quotes of 124 shares remained virtually unchanged. On the NASDAQ stock exchange, 2,587 companies fell in price, 1,138 rose, and 248 remained at the level of the previous close.

The CBOE Volatility Index, which is based on S&P 500 options trading, was flat at 0.00% at 26.21, hitting a new monthly high.

Gold futures for December delivery lost 0.81%, or 14.25, to hit $1.00 a troy ounce. In other commodities, WTI October futures fell 4.93%, or 4.78, to $92.23 a barrel. Brent oil futures for November delivery fell 4.36%, or 4.49, to $98.44 a barrel.

Meanwhile, in the Forex market, the EUR/USD pair was unchanged 0.25% to 1.00, while USD/JPY was up 0.08% to hit 138.80.

Futures on the USD index fell 0.03% to 108.75.

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Hard-working" dollar: strengthening on the euro downturn and in anticipation of positive data on employment in the US



The US currency is in tension before the release of the US labor market report, despite the advantage over the European one. At the same time, EUR does not leave attempts to rise and catch up.

Currently, the downward trend prevails on the markets, plunging the American and European currencies into pessimism. According to economists at Commerzbank, a long-term strengthening of the US labor market provides significant support to the greenback. Experts put an equal sign between a strong labor market and a growing dollar.

According to preliminary estimates, the positive trend in the USD will continue as long as the Federal Reserve adheres to a tight monetary policy. This situation is favorable for the US currency, but undermines the position of the European one. The EUR/USD pair was trading at 1.0012 on the morning of Thursday, September 1, trying to get out of the current range. At the same time, analysts pay attention to the high probability of the pair moving towards parity.



The greenback plunged a bit on Wednesday evening, August 31, after the release of macro statistics on the US labor market, but later won back short-term losses. U.S. private-sector jobs increased by 132,000 last month, according to Automatic Data Processing (ADP), an analyst firm. Initial jobless claims in the U.S. surged to 248,000 on Friday, according to preliminary forecasts. Data on unemployment in the country will be released on September 2. Experts expect this indicator to remain at the level of July (3.5%) and to increase the number of jobs in the non-agricultural sector of the country.

Many currency strategists rely on strong US employment data and falling unemployment. They consider these indicators the most important for the Fed and its future monetary policy. However, some experts argue that the key indicator for the central bank is the level of salaries. Recall that Fed Chairman Jerome Powell and other members of the FOMC are counting on the "cooling" of the national labor market. Representatives of the Fed are trying to avoid a situation in which wage growth provokes another round of inflation. In such a situation, the increase in the number of vacancies recorded in August is a negative signal for the central bank.

Against this background, the European currency seeks to maintain balance and get out of the price hole. However, its efforts are rewarded with rare bursts of recovery, and then a decline. Adding fuel to the fire is uncertainty about the European Central Bank's next steps on the rate. According to Nordea economists, next week the central bank will raise the rate by 75 basis points. The bank believes that even negative forecasts for economic growth in the region will not interfere with this.

At present, the inflation rate in the eurozone remains stably high. According to current reports, inflation in EU countries reached an impressive 9.1% in August. Previously, this figure was 8.9%. The current situation undermines the euro's position, which is hardly kept afloat. According to analysts, the weakening of the euro against the dollar is due to the active tightening of monetary policy by the Fed. At the same time, the current parity between currencies may disappear when a compromise is reached in the EU on tightening the monetary policy or when inflation in the United States returns to the target of 2%. However, both situations are unlikely, experts say.

According to experts, the 1:1 ratio between the dollar and the euro will remain until the EU countries begin to tighten monetary policy following the example of the United States. However, there are many pitfalls here, as the ECB needs to find a compromise between all the countries of the euro bloc.

Many experts believe that by the end of 2022 the balance of power in the EUR/USD pair will change, due to which the topic of parity will be removed. Experts allow changes in the ECB's actions regarding monetary policy. The same is possible with regard to the Fed, which is worried about labor market problems and galloping inflation. According to analysts, the pair will tend to the usual ratio of 1.0500-1.1000. "In the event of a sharp turnaround, the EU economy will receive a solid bonus for the growth of exports and the economy at the expense of the US and China," the experts emphasize.

Market participants are concerned about the questions: will the Fed take a decisive approach to monetary policy? Will the ECB follow suit? Many traders and investors are skeptical about the immediate prospects for the dollar and the euro. At the same time, analysts expect a reduction in key rates in the second half of 2023. The implementation of such a scenario will weaken the greenback and limit the potential for its strengthening.

In the current situation, some experts believe that the markets are wishful thinking, expecting less rigidity from the Fed in the process of forming monetary policy. In this matter, much depends on the level of unemployment in the country. Excessive strengthening of the labor market in the US is pushing the central bank to tighten monetary policy as soon as possible.

Fed officials are stepping up the pace of this tightening, emphasizing that they are ready to temporarily sacrifice the economy for the sake of curbing inflation. However, a few months ago they said they would try to avoid a recession. However, despite the economic upheavals, the US currency remains strong and remains competitive in the global market.

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EUR/USD. Something is wrong in the Forex kingdom, although the euro's problems are still countless, it, as if distraught, craves revenge, and the dollar, not wanting to give up the crown, weaves its insidious network



The dollar starts September with a combative mood, trading near 20-year highs and benefiting from flows to safe havens.

Fears for the fate of the global economy and the drumbeat of leading central banks are rattling traders' nerves.

The greenback is also popular with investors, as they need to buy USD to maintain their margin positions in the face of declining stock indices.

Players' nervousness is compounded by the fact that stocks are entering a historically weak period for the market.

Since 1950, the S&P 500 has fallen by an average of 0.5% in September.

This year, everything speaks in favor of repeating historical trends.

Over the past two months, the volume of a net short position against S&P 500 futures has grown significantly and reached its highest value in two years.

The index just ended the month with its fourth consecutive daily decline on Wednesday.

Investors are still under the impression after Federal Reserve Chairman Jerome Powell's statement last Friday that the central bank's key rate should be raised to a level that will allow inflation to be controlled, despite the risks of recession. The S&P 500 index since last Thursday, the last day before Powell's speech in Jackson Hole, lost more than 5%.

"The market has received a message that the Federal Reserve is going to fight inflation at any cost. We don't think we've seen a bottom this year," strategists at Optimal Capital Advisors said.

On Wednesday, the head of the Federal Reserve Bank of Cleveland, Loretta Mester, continued this topic. She said that the US central bank needs to raise the base rate from the current target range of 2.25%-2.5% above 4% by the beginning of next year and leave it at this level for some time to reduce inflation.

Against this background, the yield of two-year US Treasury bonds, which changes in accordance with expectations regarding interest rates, reached the highest level since the end of 2007 yesterday, rising above 3.5%.

The higher yield of treasuries pushes up the dollar as investors sell debt denominated in other currencies to get a higher premium on US treasuries.

"It doesn't look like they can actually offer decent resistance to the dollar, given such a gloomy global outlook," Rabobank strategists said, referring to other major currencies. "If you sell the dollar, what will you buy?" – they said.

The greenback has been growing for three consecutive months, while the euro fell by 6.5% over the same period.

The greenback's growth against the single currency reflects concerns that a sharp jump in energy prices in the eurozone, caused by the conflict between Russia and Ukraine, will lead to higher inflation and push the European economy into recession.



"High inflation and gas supplies are still serious problems in the euro area. We think this will continue to put downward pressure on the single currency," Commonwealth Bank of Australia analysts said.

As data released on Wednesday showed, inflation in the eurozone rose to a record high of 9.1% in August. This strengthened the case for further significant rate hikes by the ECB to tame it.

"Before the start of the Jackson Hole symposium, the market expected the ECB to raise the rate by 1 bps by the October meeting, and since then these expectations have only increased. However, a rate hike is unlikely to strongly support the euro against the greenback, given that investors are likely to remain focused on the risks of stagflation in the eurozone and given the safe haven function for the dollar," Rabobank analysts said.

"We maintain our EUR/USD target at 0.9500 for one month and still expect the widespread strengthening of the US dollar to persist over the next six months or so," they added.

Another unexpected rise in inflation increases speculation about a 75 bps ECB rate hike at next week's meeting. However, MUFG Bank economists do not believe that the euro will benefit from this sharp tightening.

"Market participants currently estimate a 71 bps rate hike by the ECB policy meeting on September 8, as well as the fact that it will continue to raise rates to 1.50% by the end of the year. Market expectations of a sharper tightening of policy were supported by the hawkish comments of ECB policy makers after Jackson Hole and the recent announcement of another unexpected increase in inflation in the eurozone. However, we are not convinced that a sharp tightening of the ECB's policy will support the steady growth of the euro, as the risks of recession in the eurozone remain elevated," they said.

The eurozone, in case of termination of pipeline gas supplies from Russia, may face a recession in the second half of 2022, analysts at Fitch Ratings believe.

"The onset of recession in the eurozone is likely in the second half of 2022, and in 2023, Germany and Italy will experience an annual decline in GDP. Economic vulnerability in the event of termination of pipeline gas supplies remains high, despite recent active efforts to diversify import sources, in particular LNG," Fitch said.

With the passing of the summer heat, as well as news that European countries are filling their storage facilities at a faster pace than expected, energy prices in the eurozone have decreased from peak values.

However, the European economy, and especially Germany, remain vulnerable to the onset of winter if Russia stops supplying gas, given that storage facilities cover only 25-30% of winter consumption.

"It is very difficult to predict how the situation with gas will develop in the European Union in winter, since much will depend, among other things, on the weather and the volume of gas coming from alternative sources to Russia," said the deputy head of the Directorate of the European Commission for Energy in the relevant committee of the European Parliament.

The European Commission expects gas prices in Europe to remain at an elevated level in the coming winter and fall in 2024-2025.

"We expect that prices will remain at an elevated level in the coming winter, they will fall again in 2024-2025. But they are subject to some fluctuations," EC spokesman Tim McPhie said.

Gas prices and sentiment in Europe are now undergoing a serious stress test, as the Nord Stream-1 gas pipeline closed on August 31 for maintenance. All this warns against excessive enthusiasm for the recovery of the European currency at this stage, ING strategists note.

The EUR/USD pair ended Wednesday's session with an increase of 0.3%, near 1.0057, having reached a weekly high at 1.0080 during yesterday's trading. At the same time, the USD index fell by 0.1% to 108.65 points.



The euro was supported by expectations that the ECB will raise the interest rate by 75 basis points next week.Meanwhile, dollar shorts were mainly caused by the rebalancing of portfolios at the end of the month, turning into consolidation.

The EUR/USD pair lost its bullish momentum on Thursday and plunged by almost 150 points from Wednesday's closing levels. At the same time, the USD index rose to the highest levels since June 2002, coming close to 110.

The Fed's tough stance is still working in favor of the greenback, and the energy crisis in Europe is against the euro, which has not gone away with the correction of gas prices over the past three days.

"Even after reaching new records, the dollar has room for further growth, which is facilitated by the prospects of a global recession and, in particular, the energy crisis in Europe," Generali analysts said.

Fears related to the global recession were exacerbated by China, which announced that Chengdu, a city with a population of about 21 million people, was put on lockdown due to coronavirus.

Reflecting investors' unwillingness to take risks, key Wall Street indexes mostly declined on Thursday.

Friday's US employment report for August carries risks for stocks, because if it is strong, it will increase the prospects for further Fed rate hikes.

The Fed's determination is beyond doubt, since it once led the movement among major central banks to aggressively tighten monetary policy.

As for the ECB, it has yet to prove that it is really ready to act, and not just talk.

"The ECB has yet to convince the markets with its comments to prove that it is willing to endure economic pain in order to effectively combat price risks. Only at this point will the euro be able to really benefit from the ECB's monetary policy on a more sustainable basis," noted the strategists of Commerzbank.

"In a crisis, the market is likely to sell the euro as an initial reaction due to fears of a recession. The ECB's determination to fight inflation is likely to have a positive impact on the single currency only at a later stage – if at that time the ECB really sticks to its approach. This means that euro bulls will probably have to be patient for some time," they added.

"The markets are now putting in quotes an increase in the ECB rate by 167 bps in total by the end of the year.

However, the recent narrowing of spreads on two-year swaps between the euro and the dollar may have already ended, and a reversal – if the ECB does not meet the new hawkish expectations embedded in prices – could send EUR/USD to new lows next week," ING analysts said.

They predict that the EUR/USD pair will remain under pressure in the range of 0.9900-1.0100.

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US stock market closed lower, Dow Jones down 1.07%



At the close on the New York Stock Exchange, the Dow Jones fell 1.07% to a one-month low, the S&P 500 fell 1.07%, and the NASDAQ Composite fell 1.31%.

Chevron Corp was the top performer among the components of the Dow Jones index today, up 2.31 points or 1.49% to close at 157.85. Salesforce.com Inc rose 0.16 points or 0.10% to close at 153.69. Walgreens Boots Alliance Inc rose 0.01 points or 0.03% to close at 35.27.

The losers were 3M Company shares, which lost 3.98 points or 3.17% to end the session at 121.65. Honeywell International Inc. shares rose 2.01% or 3.84 points to close at 186.89, while Procter & Gamble Company shed 1.78% or 2.48 points to close at 137.16.

Leading gainers among the S&P 500 index components in today's trading were CF Industries Holdings Inc, which rose 4.34% to hit 106.86, Hess Corporation, which gained 3.83% to close at 120.91, and also shares of The Mosaic Company, which rose 3.79% to end the session at 54.84.

The biggest losers were DISH Network Corporation, which shed 4.49% to close at 17.01. Shares of Generac Holdings Inc shed 4.13% to end the session at 223.39. Quotes of Zebra Technologies Corporation decreased in price by 3.92% to 297.60.

Leading gainers among the components of the NASDAQ Composite in today's trading were Venus Concept Inc, which rose 54.87% to hit 0.54, Sunrise New Energy Co Ltd, which gained 31.46% to close at 2.80. , as well as shares of Advanced Human Imaging Ltd ADR, which rose 29.90% to close the session at 1.26.

The drop leaders were PolyPid, which fell 73.47% to close at 1.43. Shares of Shuttle Pharmaceuticals Inc lost 71.56% to end the session at 14.90. Quotes of ShiftPixy Inc decreased in price by 33.92% to 13.60.

On the New York Stock Exchange, the number of securities that fell in price (1,797) exceeded the number of those that closed in positive territory (1,297), while quotes of 136 shares remained virtually unchanged.

On the NASDAQ stock exchange, 2,338 companies fell in price, 1,371 rose, and 257 remained at the level of the previous close.

The CBOE Volatility Index, which is based on S&P 500 options trading, fell 0.35% to 25.47.

Gold futures for December delivery added 0.70%, or 12.05, to $1.00 a troy ounce. In other commodities, WTI October futures rose 0.59%, or 0.51, to $87.12 a barrel. Brent oil futures for November delivery rose 1.02%, or 0.94, to $93.30 a barrel.

Meanwhile, in the forex market, the EUR/USD pair remained unchanged 0.17% to 1.00, while USD/JPY fell 0.02% to hit 140.18.

Futures on the USD index fell 0.12% to 109.55.

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