22.10.201900:49 Forex Analysis & Reviews: Insidious dollar: easing, not weakening

The US currency, despite many years of stability and high demand, is going through difficult times. It is under pressure due to both external factors and internal ones, to which the dollar stubbornly resists. Analysts are certain that a strong greenback will be weakened by force in the near future.

Among the reasons that weaken the position of the US dollar, analysts call negative trends in the US economy and the unstable political situation in Europe associated with Brexit. Such factors have a negative impact on the EUR/USD exchange rate, preventing it from stabilizing. Last week, the pair reached seven-week highs, approaching the impressive mark of 1.1170. The market's response was an increase in the number of "bullish" forecasts, which have not yet lost their relevance.

Many analysts doubt that the US dollar will retain its long-standing status as a safe haven currency in the near future. They are certain that it is actively on the heels of the European currency. However, a number of analysts urge not to rush to conclusions, as the situation around Brexit plays against the euro. At the end of last week, giving hope for a speedy resolution of this protracted issue, it left the market with its nose. It is possible that the topic of Brexit will be rebooted, which will negatively affect not only the British pound, but also the dollar against the euro.

In the last few weeks, experts have recorded a noticeable slump of the US currency. Some analysts put forward a version that the American elite is trying to artificially weaken the greenback. Experts came to such conclusions, observing the bickering of US President Donald Trump with the Federal Reserve and attempts to pressure the regulator. The head of the White House has repeatedly stated that it is the policy of the Fed that makes the national currency too strong.If the dollar strengthens its position, the market will have to artificially weaken it, analysts said.

One of the current key tasks, experts believe, is to prevent a possible collapse of the US stock market. In this regard, a slight weakening of the US currency plays an important role. To prevent a financial disaster, the Fed has taken to eliminate the deficit of dollar liquidity, filling the economy with "live" money with the help of quantitative easing (QE). Simply put, the Fed has turned on the printing press. Recall, the previous round of pumping the US economy with "fresh" money took place in 2013. At the same time, Fed Chairman Jerome Powell plays with words, not calling the current build-up of the balance sheet a program of QE, but the essence does not change: rates are reduced, dollars are printed, and the greenback gradually subsides.

According to Scotiabank, the US currency will continue to weaken until the beginning of next year. The reason for this, experts believe, is a decrease in investor interest in safe haven assets. Earlier, the US currency managed to maintain this status, but now the situation has changed. Progress in the US-China trade talks and small but positive developments regarding Brexit added to the dollar's negativity. Earlier, the escalation of conflicts provoked an increase in Treasury purchases by non-residents, contributing to the flow of capital to the United States. Currently, it's problems are exacerbated by negative macro statistics, as well as an excessive number of short positions in the euro and the pound, which market players intend to close. A similar situation provokes the EUR/USD rally, analysts said. The pair was trading in the range of 1.1177–1.1178 on Monday morning, October 21. Analysts warned of its fall in the near future.

The calculation turned out to be correct: the further decline in the EUR/USD pair really took place. In the moment, the pair fell to 1.1156–1.1157. It later crossed that threshold.

Currently, the EUR/USD pair is in the range 1.1168–1.1169. After a sharp subsidence, it gained momentum and successfully won back the lost positions. Last Friday, the euro strengthened amid a weakening US dollar, which came under pressure amid positive Brexit news.

Experts associate the US currency with a persistent tin soldier who is not afraid of difficulties and is tempered in the fight against them. The greenback is really trying to maintain and strengthen its gains, despite opposing factors. Two ex-heads of the Commodity Futures Trading Commission (CFTC) tried to help the greenback. They were Christopher Giancarlo, chairman of CFTC, and Daniel Gorfine, head of LabCFTC. They proposed to the US authorities a plan to save the global hegemony of the national currency. It consists in introducing a digital dollar based on blockchain technology. According to financiers, the digital format will help the US currency maintain high competitiveness in the future.

According to the calculations of C. Giancarlo and D. Gorfine, the virtual dollar can be used for financial transactions both in the United States and abroad. Specialists note that the new payment system has several advantages over the existing one. These include an almost instantaneous transaction speed, the ability to conduct micropayments, a high level of security and transparency. The catalyst for this initiative was concern over the possible loss of the dominant role of the dollar in the global financial system. The loss of greenback leadership in the global economy will lead to disastrous consequences, C. Giancarlo and D. Gorfin said. If this scenario is realized, the financial and exchange markets may suffer, and the global demand for US debt will substantially subside, financiers conclude.