The US currency, which previously confidently conquered the top after the top and holds the won positions, loses its foothold. According to analysts, the dollar is desperate to strengthen, but acts more out of inertia.
Currency strategists at Standard Chartered Bank argue that the current strengthening of the US dollar is by inertia. Experts say that the existing strengthening of its positions does not reflect real dynamics. Standard Chartered Bank believes that the strength of the dollar is apparent, unreal, not the same as at the beginning of the COVID-19 pandemic. Bank analysts admit that the current weakening of this currency may be the first step towards restoring the global economy. Investor demand for USD steadily grows only during periods of risk aversion, and now, when the situation is stabilizing, the need for the dollar is becoming less relevant.
At the same time, devastating reports on the dynamics of the dollar were dealt with by devastating reports on the US labor market (non-farm), although some of the April data were in the green zone. According to the US Department of Labor, the unemployment rate soared to 14.7% last month. Despite the fact that it did not exceed the negative forecasts of experts, the dollar has no reason to be optimistic. According to analysts, an increase in unemployment of up to 14% is an anti-record in itself, since this indicator is not far from the worst result since the Great Depression in the United States. It can be recalled that the unemployment rate reached 25% in that period.
With regard to the indicator of employment, the situation on the American labor market turned out to be depressing: it decreased by 10 times compared with the Great Depression, when the number of unemployed was 2 million. Moreover, it can be recalled that the number of citizens left without a livelihood reached 20 million 500 thousand in April 2020. As a result, more than 33 million new unemployed have been registered in the United States since the beginning of March this year.
The large scale of the coronavirus crisis impressed experts and unsettled the market. At the moment, the pain points of the American economy are the sphere of leisure and hotel business, the loss of jobs in which exceeded 7 million, retail trade, with more than 2 million layoffs, and the production sector, where the number of unemployed reached 1.3 million.
On Tuesday, May 12, experts expect the most important information on the growth of American inflation over the past month. According to analysts, these data will become decisive for the dollar and will largely determine the further vector of its dynamics. Last economic release (March 2020) introduced a significant share of pessimism in the assessment of the US economy and national currency. It can be recalled that inflation indicators went into the "red" zone earlier, breaking through the negative barrier (-0.4%). Experts are confident that the April indicators will continue the negative trend, which will strengthen in May. According to preliminary estimates, the general consumer price index may fall into the area of negative values and reach -0.7% in monthly terms, and in annual terms - fall to 0.4%.
Current economic crisis not only destroyed the dollar's dynamics, but also destroyed the expectations of dollar bulls. The downward pressure that the current crisis is exerting on the US currency does not allow the bulls to turn around. They have to be content with the correction in the EUR/USD pair, since it is necessary to rise above 1.0870 for a change in the situation, and this is unrealistic at the moment. On Monday morning, May 12, the EUR/USD pair was trading in the range of 1.0814 - 1.0815, trying to rise higher. However, the rise was carried out in such small steps that the chances of a pair to grow sharply were close to zero.
The past week did not add to the optimism of another participant of the EUR/USD pair – the European currency. The report of the European Commission had a negative impact on the "European", as a result of which it fell in price not only in a pair with the greenback, but also across the entire spectrum of the market. At the moment, the Euro remains under pressure from global uncertainty about the ECB's new stimulus measures. Internal contradictions of European leaders regarding anti-crisis financing worsened the situation. It should be noted that Germany demanded that the European regulator justify a new program of buying bonds at the end of last week, believing that this measure will complicate the recovery of the European economy. However, Christine Lagarde, the head of the ECB, says that this is the most acceptable solution in the current conditions, and the regulator intends to adhere to the chosen strategy. Experts do not rule out that in the near future the ECB may announce an expansion of the quantitative easing (QE) program.
The European currency missed a great chance to slightly grow, using the temporary weakness of its rival. Analysts say that It failed to take advantage of the negative report on the American labor market and the decline of the US dollar. They pay attention to the increased dependence of the European currency on the American currency, the dynamics of which will be highly unsatisfactory.
However, many experts are positive about the future prospects of the euro. Commerzbank's currency strategists believe that the single currency will recover to $ 1.1400 in the second half of 2020, that is, it will almost double compared to the current value. The catalyst for raising the euro may be the loss by the dollar of such an advantage as high interest rates, the bank said. Experts noted earlier that a sharp reduction in the rate of federal funds in the United States to 0.00-0.25% against the backdrop of the COVID-19 pandemic. Commerzbank is confident that this trend will continue, thanks to which the euro will rise to $ 1.1400 by the end of 2020.
The economic problems of the Euro zone and difficulties in implementing the ECB's stimulus program may become a limiting factor for the growth of the European currency in the near future. At the same time, experts say that the dollar, which won in the short run, may lose in the medium-term. They do not rule out a slowdown in the current growth of the dollar. However, experts summarize that the US currency will be among the first again in a long, long-term race, having replaced European currency.