Exchange rates in the shadow of the dollar's power, EUR/USD breaches pandemic lows, GBP and NOK heavily battered (Daily analysis 28.04.2022)

The dollar continues to dominate the foreign exchange market. Its appreciation against other currencies continues and is, in fact, gaining momentum. The euro has broken through pandemic lows, and the pound and the Norwegian krone, among others, have lost ground to the single currency in recent days. On the global markets, the sentiment is chimerical, and the key point of the day may be the reading of the dynamics of the US GDP developed in Q1.

US dollar: new records of strength, the EUR/USD in a downward spiral

While there are attempts to stabilise the sentiment on the equity markets and push up the indexes, the trend in the strengthening of the dollar has not lost its momentum. In fact, over the last few dozen hours, it has even accelerated. This trend can be compared to an avalanche, which must stop at some point, but for the time being, is crushing all the obstacles on its way. In the case of the EUR/USD exchange rate, one of these was the pandemic lows of March 2020. Uncertainty about the prospects of the European economy and its energy security after the cessation of Russian gas supplies to Poland and Bulgaria became a pretext for an even stronger retreat from the common currency.

The dollar has the most important assets on its side: stronger growth, a more hawkish central bank and energy independence. Currently, the 1.05 level is being tested, and its crossing in the closing month's prices could lead to a deepening of the decline towards the lows of early 2017, which are located near 1.0350. Parity could be the next target, but it should be remembered that in a currency market, very dynamic reshuffles like the one we are seeing now often lead to an extreme deviation of the value of individual currencies from their fundamental value. At the moment, we are in the eye of the cyclone: the war, the pandemic restrictions in China, the spiralling sell-off on the equity markets, the collapse of the sovereign bond market and even the fear of recession in Europe are making the dollar the natural choice for investors. Currencies considered to be more risky, such as the pound or the Norwegian krone, are even more overvalued than the euro.