The victorious procession of the US dollar, the powerhouse of the world economy, was suspended due to the active spread of the coronavirus COVID-19 and a sharp drop in the yield of US Treasury bonds. Experts are confident that in the near future, the greenback will continue to weaken and its growth will slow down.
Analysts agree that there is a minimal chance of strengthening the US dollar. One of the catalysts for the fall of the dollar was the recent emergency increase in the Fed rate by 50 basis points (bp). At the same time, experts admit the possibility of repeatedly cutting rates throughout the year, reassuring similar situation will undermine the strength of the greenback.
The Federal Reserve promptly reduced the interest rate in order to mitigate the negative effects of COVID-19 and increase the efficiency of stock markets. However, according to analysts, these measures did not have the desired effect. Markets did not feel a positive impact, and the yield on 10-year treasury bonds continued to decline. Currently, it has slightly exceeded 1%, which is very worrying for investors.
The continuous collapse in the yield of US debt securities is slowly but surely weakening the position of the greenback, analysts say. The European currency took advantage of this chance, strengthening its position in the EUR / USD pair. The euro is actively growing amid the weakening of its overseas rival, although this growth cannot be called uniform.
On Thursday, March 5, the EUR / USD pair entered an upward spiral, steadily increasing and reaching the resistance level of 1.1190. According to experts, the important task of yesterday was to consolidate the tandem's positions above this level, of which the pair did quite well. Analysts believe that a breakthrough of this level will open the way to the highs of 1.1239 and 1.1263, where profit can be recorded.
On Friday, the pair rushed to storm new heights and was very close to the above maximum values. Currently, the tandem runs near 1.1234-1.1235, trying to rise higher.
According to experts, in the short term we should expect a steady and long-term weakening of the greenback. If this scenario is realized, the consequences will turn out to be not the most encouraging where possible explosive growth in commodity prices, accelerated inflation and increased interest in emerging market currencies might occur. At the same time, analysts warn that the dollar will be an outsider for some time.
