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On Tuesday, the American president unexpectedly stated that he is not concerned about the weakening of the national currency. Following such a statement, the dollar intensified its downward trend, which also contributed to the rise in gold prices due to its depreciation, but this is not the only reason for the dollar's decline in the Forex market.
Certainly, Trump's remark that he is not particularly worried about the dollar's decline had a significant impact, but there are other reasons as well. The most important current factor is the criminal proceedings against J. Powell, the still-chairman of the Fed. Trump is clearly using the legal angle to pressure the central bank to more actively lower borrowing costs to stimulate domestic producers. Earlier last year, the president attempted to negotiate with the Fed and Powell regarding more aggressive interest rate cuts, but no consensus was reached.
Another reason for the dollar's weakness is the growing tension between the EU and the US. Europeans, amid the confrontation, have started threatening to initiate sell-offs of Treasuries. This is in addition to other factors; however, the reasons cited seem sufficient to me.
Wednesday marks the conclusion of the two-day Federal Reserve meeting on monetary policy, and market attention will not be focused on the resolution but rather on Powell's press conference, from which comments are expected about the possibility of rate cuts amid negative trends in the labor market and stabilization of the Consumer Price Index (CPI) below the 3% mark. Any hints that rates may be cut before the chairman leaves office in April by 0.25% would support the weakening of the dollar, with all resulting consequences.
In this context, one could expect a confident decline in the ICE dollar index below 96.00, with a further drop toward 95.00. But even if that does not happen, the high likelihood of a sympathetic Fed chair with a soft monetary policy taking office could be one of the most significant factors in a more noticeable decline in the exchange rate, perhaps below the 95.00 mark.
I believe that a local recovery of the dollar amid the unwinding of some short positions will continue until the results of the Fed meeting are announced, but the overall negative trend may resume thereafter.
The pair was correcting downward ahead of the Fed's rate decision. It may fall to 1.1915, then reverse upward and aim for 1.2030. A purchase level could be 1.1925.
The pair is also correcting lower ahead of the Fed's rate decision. It may decrease to 1.3720, then reverse upward and aim for 1.3965. A purchase level could be 1.3738.
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