14.08.202011:16 Forex Analysis & Reviews: Dollar believed in its immortality, but overestimated its power

The US currency has been leading the world market for many years, and its dominance has always been considered an indisputable fact. However, now, in the era of breaking the usual paradigms, the dollar has to rethink a lot and prepare to yield its position to other currencies.

Experts have repeatedly stated that the era of the euro is approaching, which can replace the US dollar in the long term. However, there are many obstacles in this matter. Currently, the "European" currency is supported not only by the weakening of the rival for the EUR/USD pair, but also by financial injections from the EU leaders, thanks to which the European countries most affected by the COVID-19 pandemic receive assistance. This gives the euro a head start over the dollar, but does not negate the difficulties that the European economy is facing.

On Thursday, August 13, experts recorded a 0.6% rise in the price of the single currency amid the refusal of the American authorities to raise tariffs on imports of European goods in the amount of $ 7.5 billion. The favorable situation once again allowed the euro to overtake the dollar in the EUR/USD pair. As a result, the pair rose to 1.1853, reaching its highest level for the current week. On the morning of Friday, August 14, the indicated pair no longer showed such results, moving around 1.1818. Subsequently, it climbed to the range of 1.1821-1.1822, but could not repeat yesterday's record.

The positions of the European currency may be shaken if the economic data for the euro area begins to show a constant decline. If such a scenario is implemented, analysts at ABN Amro are sure that the US dollar will have a chance to recover. As for the future fate of the US currency, experts' opinions are quite contradictory. ABN Amro currency strategists believe that in the medium term, the dollar has a good potential for recovery, and USD should use this loophole. Experts recommend that investors take advantage of any opportunity to strengthen the US currency for positioning, fearing its further subsidence.

At a certain point, supporters of the USD believed that the main world currency was on top once again. This happened earlier this week, when the dollar was supported by inspiring data on the US labor market. Non Farms gave the dollar a ghostly opportunity to regain previous losses, and the USD tried to take advantage of the chance. This did not bring much success, but it did not lead to further decline of the dollar either.

It can be reca;;ed that the US labor market was on the rise: almost all data came out in the positive area, exceeding current forecasts. The unemployment rate in the United States fell to 10.2%, and the number of people employed in the non-agricultural sector increased by 1.763 million. It should be noted that the forecast implied an increase in this indicator by only 1.5 million. Compared to May 2020, the level of average hourly wages labor, close to zero, gained height: it added 0.2% on a monthly basis, and soared to 4.8% on an annual basis. According to analysts, the rise in this indicator has a positive effect on the level of consumer activity and on inflationary processes in the United States.

Nonfarms acted as a lifeline for the US currency. This greatly supported the USD, whose position was shaken by the previous actions of the FRS, which injected into the national economy in the second quarter of 2020 a huge $ 2 trillion. It can be noted that this is 40 times more than the volume of the US budget deficit recorded last year.

Moreover, the US currency is used to thinking that its dominance is endless, but in matters of its immortality and irreplaceability, it overestimates its power. "Nothing lasts forever under the moon," says a well-known proverb, including the global domination of the dollar. However, many economists hope that the situation will change, up to a 180-degree turn, when the dollar will return to its former strength and its influence on world markets will gain impulse again.