In recent days, the US currency is cheaper against most of its major competitors, as investors began to lay in the quotes a higher probability of a decrease in the interest rate by the Fed before the end of this year.
Investment banks such as Barclays, JP Morgan, NatWest Markets, have already said that they forecast a softening of the monetary policy of the Federal Reserve against the backdrop of escalating tensions in trade relations between the United States and China, which has a negative impact on economic growth in both countries.
Now, the derivatives market estimates the probability of reducing the federal funds rate by the end of the year at 98%, and at the end of the July meeting of the FOMC – at 61%.
JP Morgan experts expect that the US Central Bank this year will reduce the interest rate by 0.25% twice – in September and December.
According to their estimates, the risk of a recession in the US in the second half of 2019 increased to 40% from 25% recorded a month ago, largely due to trade disputes between Washington and Beijing.
The dollar situation was aggravated by the ISM index of business activity in the manufacturing sector (PMI) published yesterday.
In May, the indicator was 52.1 points, which was 0.9 points lower than the forecast and 0.7 points lower than the April level.
The indicator reached its lowest value since October 2016, which became a signal to market participants that their concerns were far from being unfounded.
At the same time, the yield of 10-year Treasuries fell below the level of 2.11%, reflecting the high level of demand for safe assets.
Against this background, the dollar index fell to three-week lows – in the area of 97.10 points.
According to some experts, the world markets begin to "thaw" only when the USD index is trading below 97, and ideally, to ensure that the global recession is avoided, the dollar would be good to go 95 or even lower.
Meanwhile, currency strategists at Jefferies believe that the dollar, if it loses its attractiveness, it is only temporary.
"Even if the Fed cuts interest rates, other Central banks will follow the same path. Therefore, the mere fact of lowering rates in the United States does not mean the weakness of the US currency," – representatives of the financial institution noted.
"The short-term reaction is clearly negative, but the prospects for the dollar do not look so gloomy in the medium term. We recommend using the current pressure on the US currency for its purchases at more favorable levels. If there is a need to be in short positions on the greenback, then it should be sold only against one currency – the Japanese yen," Jefferies believes.
JP Morgan Bank adheres to a similar point of view, stressing that the weakening of the Fed's monetary policy does not mean that the dollar rally should stop.
Based on this, it is unlikely to count on a strong strengthening of the euro.
This week, the European Central Bank will hold a regular meeting, and it will be important not only because the details of the TLTRO program will be made public, but also because of the release of updated economic forecasts. On their basis, the ECB head Mario Draghi will decide whether the European economy is sufficiently weakened to signal the markets about the need for additional stimulus measures.
The EUR/USD pair collapsed following the last ECB meeting and may fall even more if the regulator lowers its forecasts of growth and inflation in the EU.
In addition, Donald Trump, who is "at war" with everyone at the same time, can very soon recall Europe, and the probability of this increases as the hopes for an easy US victory over China become more illusory.
