By the end of last week, the markets had perked up. Key Wall Street indexes ended trading on Friday with strong growth. In particular, the S&P 500 gained 2.4%. Against the background of improving risk sentiment, the protective dollar broke a six-day winning streak and lost almost 0.3%. The USD index sank to 104.50 after briefly rising above 105.00 for the first time since December 2002.

Taking advantage of the weakening of the greenback positions, the EUR/USD pair changed course and rose to 1.0411, having previously touched the lowest level since January 2017 in the area of 1.0348. However, following the results of the last five days, the pair lost more than 100 points, demonstrating a fall for the fifth consecutive week. The single currency has suffered both from fears caused by the Russian-Ukrainian conflict, which has driven the European economy to a standstill, and from the dollar rally.

In addition, the European Central Bank is expected to act less aggressively in terms of tightening policy than its American counterpart.

The strengthening of the greenback should help the Federal Reserve limit price growth and support American demand for foreign-made goods.

Meanwhile, the euro's weakness is making dollar-denominated imports and commodities, such as oil, more expensive, increasing price pressures that have already led to record levels of inflation in the eurozone.

"The rapid pace of Fed rate hikes is causing headaches for many other economies, causing the weakening of national currencies," Scotiabank analysts noted.

Over the past week alone, the euro has fallen by more than 1% against its American counterpart.

The US central bank has already raised rates by 75 basis points since March and has made it clear that a couple of 50 basis point increases may occur at its next two meetings.

ECB Governing Council member Francois Villeroy de Galo believes that the central bank should at least switch to a neutral rate at which monetary policy does not stimulate the economy and does not restrain it.

At the same time, Europe is in a slightly different situation than the United States, since its economy is much more vulnerable to the consequences of the Ukrainian crisis, although the eurozone is also facing rising inflation.

"Much weaker economic growth and much higher inflation put the ECB in front of one of the most difficult policy challenges in the G10," HSBC strategists believe.

IMF analysts, who recently lowered the growth forecast of the currency bloc for 2022 to 2.8%, note that the ECB is walking a tightrope. According to them, the central bank should balance the need for a tougher policy to curb record inflation with the prospect of economic damage that could be inflicted, especially for some EU member states with the highest debt levels, such as Italy.

On May 19, the ECB will present the minutes from its last meeting, at which it promised to reduce asset purchases and nullify them in the third quarter.

Then the central bank did not give clear signals regarding the timing of the completion of the QE program, which disappointed investors. Now they will wait for details from the minutes. If this does not happen, the pressure on the euro will only increase."Currently, the euro itself is not an attractive currency," ING analysts say.

They kept their forecast for the EUR/USD exchange rate for the next six months at the level of 1.0500. At the same time, according to experts, the strength of the dollar and the volatility of the market mean that parity is likely.

"Market concerns about the combination of the Fed's tightening measures and the expected global slowdown in the economy continue to testify in favor of the volatility and instability of risky assets. Ultimately, this should interest many investors in buying a cheaper dollar," ING reported.

The greenback starts the new week on a solid basis, trading just below the 20-year highs reached earlier.

Already on Monday, there was no trace of the optimistic sentiment that many risky assets lifted from the "bottom" on Friday.

Key Wall Street indices are trading in the red zone today. This suggests that at the end of last week we saw a positional profit-taking, but not the end of the downward trend.

Traders continue to assess what measures the Fed will take in the future.

"We think we will have to at least wait for two or three Fed rate hikes of 50 basis points before we see any real signs of people returning to the market," Dakota Wealth Management said.

Some analysts fear that if the Fed raises rates too quickly or too much, it could lead to a recession, the Associated Press reports.Goldman Sachs lowered its forecast for the growth of the United States economy for the current year from 2.6% to 2.4%.

Cleveland Fed President Loretta Mester said it will take several months before the Fed can conclude with certainty that inflation has peaked.

"I am ready to consider a faster rate hike by the September FOMC meeting if the data does not show improvement," Mester said.Worries about the Fed's ability to curb high inflation without causing a recession, as well as concerns about a global downturn, have pushed investors back to the safe haven dollar.

Disappointing statistics from China added fuel to the fire. In April, retail sales in the country fell by 11.1% compared to the same period last year, which is almost twice the projected decline, while industrial production decreased by 2.9% instead of the expected growth of 0.4%.

The ongoing geopolitical tensions related to the conflict between Kiev and Moscow are also fueling the demand for the dollar as a safe haven asset.

Over the weekend, Finland and Sweden took steps to join the North Atlantic Treaty Organization.

The Kremlin has already warned about the possible consequences of such a step, especially for Finland, which has a long border with Russia, which could increase tensions.

The EUR/USD pair struggled to stay above the 1.0400 mark on Monday. Obviously, it is difficult for it to gain bullish momentum in a risk-averse environment.

According to Westpac analysts, the prospect of a stronger dollar remains as the Fed is still determined.

Meanwhile, expectations regarding the tightening of the ECB's policy remain restrained, and the single currency does not have many reasons for growth.

"The end of QE on June 9 and the rate hike on July 21 remain fully embedded in the quotes. However, the swap market is currently pricing in a 140bp increase over the next 12 months, followed by another 45bp over the next 12 months, which will lead to a peak in the deposit rate of about 1.35% versus 1.75% at the beginning of last week. This revaluation clearly reflects the deterioration of the economic outlook," Brown Brothers Harriman analysts said.

The EU authorities are preparing for a cascade of problems that will hit the economies of the countries of the region due to the situation in Ukraine, writes Bloomberg.

"The impending storm of new energy price hikes, rising food prices and related social and economic dangers attracts the attention of Brussels officials, who fear the numerous shocks that have hit the EU," the agency notes.

The European Commission has revised the forecast of eurozone GDP growth for 2022 – from 4% to 2.7%.

At the same time, inflation in the currency bloc is expected to accelerate to 6.1% this year from 2.6% in 2021.

The risks facing the eurozone are closely related to energy security, and a slowdown in growth in China could become another thorn in the heel of the single currency, Rabobank strategists say.

"We have recently raised our forecast for the US dollar and lowered our one and three-month targets for EUR/USD to 1.0300," they said.

Analysts note that the $1.0340 mark is a key support level for the euro.

"In the EUR/USD pair, we continue to focus on the January 2017 low of about 1.0340. If this level is surpassed, we should start talking about falling to parity and below," Brown Brothers Harriman analysts said.

A possible breakthrough of the EUR/USD low of 2017 at 1.0340 will open the way for the pair to parity, according to Credit Suisse.

"We think that the 2017 low at 1.0340 will initially stand, which will cause consolidation, but in general our baseline scenario assumes its breakdown, which will further strengthen the bearish trend, with support, which is then observed at 1.0217-1.0209 and, eventually, at 1.0000-0.9900, which is 78.6% correction of the bullish trend of 2000-2008. Here it is possible to form a foundation and even longer consolidation. However, below we will see support at the level of 0.9609," the bank's strategists noted.

"The short-term resistance is at 1.0420, and its breakdown will cause a rise to 1.0471. At the same time, the 13-day exponential average at 1.0530 should ideally restrain growth. Its breakdown and closing above it will allow the pair to continue climbing," they added.