Despite everything, the US dollar continues to grow in relation to all currencies. What is the reason for this "American" behavior?
The exchange rate of the American currency has only received significant support in recent months, despite lower interest rates at the last Fed meeting, as well as expectations of another cut in the cost of borrowing by 0.25%, following the meeting of the regulator on September 18. According to the dynamics of federal futures, this increase is estimated to be at 99.6%.
It seems that the dollar should decline against this background, especially in the last 10 years it has been perceived as the funding currency. Moreover, this weakening has occurred in the wake of low interest rates and quantitative easing programs. But now the situation is markedly different from the one to which the markets are accustomed. This is primarily due to the fact that the dollar is still the world reserve currency. The continued confidence in him supports his course, and this is due to the growing tension in the world due to the escalation of the trade war between the US and China.
If earlier, investors were still hoping for a solution to the trade crisis between Washington and Beijing, which caused local weakening of the dollar, then the markets finally realized that this confrontation was serious and for a long time after the introduction of mutual trade duties on September 1. That is why, amid the situation of tension and uncertainty about the future, investors leave the assets of emerging economies (EM) and buy assets of advanced economies, for example, German and American government securities. We are confident that the dollar will be in demand as long as such sentiments persist.
We observe a completely opposite picture with the rates of the euro and the British currency. Here, the situation remains extremely tense. Sterling is falling down due to the political crisis in Britain against the backdrop of the steady desire of Prime Minister Boris Johnson to withdraw the country from the EU, in any case with or without an agreement. It seems that maintaining this state of affairs will continue to exert local pressure on the pound.
The single currency is held hostage not only by clear economic problems in the euro area but also by the emerging contradictions in the ECB regarding the prospects of incentive measures. We believe that its weakening will continue against the general negative background.
In general, observing the overall picture, we believe that the general local trend towards a stronger dollar, weakening sterling and the euro will continue.
Forecast of the day:
The EUR/USD pair has every chance to continue to fall. We consider it possible to sell it either on an increase from 1.0970 or on a decline below 1.0935 with a local target of 1.0900.
The GBP/USD pair may also recover locally to 1.2050. We believe that it will remain under pressure until the vote in the British Parliament on Brexit. We consider it possible to sell it either on an increase from about 1.2050 or on a decline below 1.1995 with a local target of 1.1945.
