Will the US dollar continue to weaken after recent growth?
There are debates everywhere that the US dollar will weaken entirely. However, people should remember that this currency has a hidden potential, which may turn out to be a trump card for the world economy.
Experts think that one of the important reasons for the dollar’s weakness was the sharp decline in demand for protective currencies, to which it belongs. This low demand was preceded by a decline in US business activity. Moreover, the negative report of the country’s retail sales also supported this gloomy outlook. According to current reports, retail sales increased by only 0.3% last month, compared to September’s growth by 1.6%. At the same time, the US industrial production also released a disappointing report: last month’s growth was only 1.1%, although an increase of 5.6% was recorded in February, before the start of the COVID-19 pandemic. Due to this, investors became worried of the current situation, who expect a further decline in retail sales, in view of the worsening pandemic situation in America.
The strong collapse of the US Treasury bond is also considered as another key driver why the dollar is declining. Currency strategists at Societe Generale Bank believe that the collapse in real yields on US securities occurred after the Fed cut interest rates and introduced quarantine measures amid the pandemic. So, the predominance of negative factors doubts the successful economic growth in the country in the short and medium term.
Moreover, experts pay attention to the fundamental weakness of the US dollar, which remains under instability pressure for five consecutive days. However, this currency continues to strive to leave the downturn. Yesterday, the EUR/USD pair rose to 1.1890, whichadded 0.2%. These analysts were inspired, so they expected the classic pair to rise to the psychologically important level of 1.1900. However, the situation changed dramatically the next day. Today, the EUR/USD pair fell sharply, hovering around the low levels of 1.1846-1.1847. Further attempts to enter the upward trend occurred with varying success.
According to economists, the excess of the US dollar in the global financial system has a positive effect on the dynamics of the EUR/USD pair. This week, the Fed and the US Treasury have poured impressive amounts of liquidity into the economy. As a result, most investors had to get rid of the dollar, which led to its increased pressure.
Such measures favored the Euro, which did not miss its chance and sharply rose. However, experts consider this a temporary phenomenon. Euro’s further growth is hindered by a sharp increase in assets on the ECB’s balance sheet, which increased by € 36.57 billion this week. Therefore, experts believe that this is an alarming signal for the single currency, indicating a transition to the “negative” zone. In this situation, investors prefer selling the euro and the US dollar, which leads to a weakening of the EUR/USD pair.
The market is continuously being surprised by the incredible stability of the dollar and its ability to rise from the ground. Experts admit that it’s time for another surprise from the US dollar, which is able to show its hidden potential.
The material has been provided by InstaForex Company – www.instaforex.com