After previously breaching the $ 1.20 mark for the first time since 2018, the euro slumped late Tuesday. It was because investors took profit-taking, pushing the dollar up from its 28-month low. USD is rebounding now and it is a new situation that happened.

The euro has been up, and the dollar was falling since last week when the Federal Reserve announced it would tolerate a period of higher inflation and focus more on jobs in the future. As you know that the speech was really important.

The policy shift has prompted traders to sell dollars. Betting on US interest rates will stay lower for longer. The main beneficiary of the sell-off was the euro, which on Tuesday morning rose to $ 1.2011. This number is the highest since May 2018.

EURO Movements in the Market

After breaking this level, the euro then retreated and finally fell 0.26%. This decline was due to profit-taking as well as ongoing technical resistance to the $ 1.20 level. This condition was anticipated by the investors and traders in the market.

The reversal on Tuesday afternoon is unlikely to change the direction of the euro or dollar index. Fed Governor Lael Brainard in a speech on Tuesday said the central bank needs to release more stimuli to fulfill the Fed's new pledge of stronger job growth and higher inflation.

US bond yields fell after the speech as the additional stimulus is likely to involve more aggressive bond purchases. It becomes the focal point or attention nowadays. The dollar typically falls at interest rates because lower returns on US assets deter foreign investment.

The last Dollar Index showed that USD is 0.19% higher at 92.362 after previously hitting the lowest level since April 2018. The dollar is still down about 0.55% since Fed Chair Jerome Powell's speech on August 27. How about the present condition?

Dollar Rebound

The US dollar climbed higher in early European trade on Wednesday. It was recovering slightly from Tuesday's two-year lows. It was helped by positive US manufacturing activity and weak German retail sales. The Dollar Index, which tracks the greenback against six other currencies, was up 0.1%.

On Tuesday, you can see that the economic data showed US manufacturing activity. It was driven to a nearly 2-year high in August amid a new order surge. This follows the same optimism of Chinese and European manufacturing indicators which was happened several days ago.

The Fed-induced narrative of lower nominal and real values for a longer time has eliminated any prospect of potential upside from the dollar. It also allows investors and traders to rotate investment opportunities elsewhere. Many analysts agree with this thing.

Effect of German Retail Sales

EUR/USD fell 0.1% to 1.1904 on Wednesday. It happened after briefly rising above 1.20 for the first time since May 2018 during Tuesday's session. It was because the German retail sales fell by 0.9% in July. It dispels hope that they will drive a recovery in the third quarter.

It is in line with comments from Philip Lane, chief economist of the European Central Bank, who linked the movement of this pair to the bank's monetary policy. The euro-dollar exchange rates are indeed important. The force driving the euro-dollar exchange rates must be noticed.

If that happened, it will enter global and European forecasts. It will feed into the monetary. It is the first sign the ECB is worried about the single currency's recent appreciation, an important factor as the eurozone relies heavily on export markets for growth.

Elsewhere, AUD/USD fell 0.2% to 0.7358 after Australia officially entered its first recession in nearly 30 years. This came after second-quarter GDP shrank by a record 7% quarter-on-quarter. This note shows the worst economic downturn on record so far in the market.