The Deutsche Bank USD index which measures the US dollar's strength versus a basket of currency futures contracts is testing the lower border of the 10-year uptrend. According to experts at Deutsche Bank, if the lower border is broken, this will confirm the end of the long-lasting stellar advance of the US dollar.
Over the recent 10 years, the greenback has skyrocketed more than 40% against a basket of its major rivals. Nevertheless, analysts warn that the US dollar could be losing momentum. The main culprit of the US dollar's weakness is a recovery in the global economy in the wake of the virus-driven crisis.
The odds are that we are going to see Europe and Asia reopening their economies. The revival is expected to unfold faster in those regions than in the US. As a rule, the US dollar is losing in value in the time of recovery in the global economy, experts at Union Bancaire Privee present their outlook.
Goldman Sachs reckons that notable improvement in the EU economy and in China's national economy assures them to predict the US dollar's decline across the board.
According to J.P. Morgan Private Bank, the US dollar is likely to drop 5% by the year end due to a variety of factors such as cuts of interest rates to zero by the US Fed, a sharp increase in the Fed's balance sheet, and the prospects of a further recovery in the global economy.
Stephen Roach, ex-CEO of Morgan Stanley Asia and professor of Yale University, makes a more pessimistic forecast. From his viewpoint, the greenback could tumble as steep as 35% against its major rivals in 2021-2022.
EUR unwilling to stay in USD's shadow
It seems the time is ripe for euro skeptics to bring up gloomy forecasts. They reiterate that the idea of the EU integrity is doomed to failure. So, the COVID-19 pandemic poses a tough challenge to the EU economy. The question is that how different countries which deny any state borders can unite their efforts to tackle the coronavirus crisis. Who will provide them with financial aid? Such burning issues set the tone for the debate in the EU and also determine the trajectory of the single European currency.
The euro opened 2020 on the pessimistic note. Its weakness was followed by a sharp climb. However, EUR sank to 1.06 against USD in March from 1.1450 earlier in the year.
In other words, having hit rock bottom, the euro embarked on a steady rally. Since the lows of March, EUR/USD surged nearly 7%. Now the currency pair is trading at around 1.14.
Analysts at Commerzbank think that the euro's steady advance is propped up by investors' confidence that the EU authorities are able to lead the economy out of a recession.
At present, Germany is at the helm of the European alliance for the nearest months. So, the odds are that the EU leaders will eventually reach a compromise decision on how to revive the EU economy. Of course, the authorities will hardly cope with the overall aftermath from the pandemic-driven crisis. At the same time, there is hope that the EU economy will be able to exit a profound recession thanks to an efficient stimulus package alongside measures from the ECB, Commerzbank says.
According to the Bloomberg polls, its own USD index has been going down for the third month in a row. This index tracks the US dollar's dynamic against a basket of major currencies. The euro accounts for one third of this basket. Bloomberg points out that the US dollar has not weakened to such a great extent over the recent 12 months.
In this context, Commerzbank comes to a conclusion that the euro could shift towards a shelter asset by the end of 2020. Indeed, the euro has been developing a steady uptrend against the US dollar.
