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Recently, traders are actively selling US currency. On Thursday, all major rivals of the dollar increased in price. The only exception was "Canadian". What is the reason for such dynamics? There are several factors that encourage market participants to get rid of the US currency.
First, in less than two weeks, the Fed can reduce the rate, and immediately by half a percent. These expectations strengthened after a series of "dovish" statements from senior representatives of the regulator on Thursday evening. The head of the FRB of New York John Williams is sure that it is better to take preventive measures on rates now than to wait for trouble. About the same thing was said by Vice President of the Fed Richard Clarida. It is necessary to act without waiting for the deterioration of macroeconomic statistics, the banker said. Traders reacted immediately to the comments, and the dollar fell across the entire spectrum of the market. However, on Friday, the situation changed a little, the New York FRB called Mr. Williams' comments scientific, unrelated to the immediate actions of the regulator. This, of course, defused the atmosphere in the markets, the dollar began to strengthen its position, but still remains under pressure.
There is still second, third, fourth. Iran seized a foreign tanker, weak quarterly reports caused a decline in the stock market. The head of the US Treasury Steven Mnuchin hints at possible changes in dollar policy. He said that "the policy of a strong dollar has not changed", but the key role in this expression is played by the word "yet". Mnuchin also refused to comment on the current levels of the US currency and talk about the policy of the EUR/USD ratio.
Donald Trump has repeatedly announced his desire to see the dollar weaker, because, in his opinion, the strength of the national currency can hinder the economic growth of the country. Europe and China are playing a "game of big currency manipulation," he wrote recently on Twitter and urged the US to "either match it or remain a fool." The set of these factors worsens the operating environment for the "American".
What do analysts think about Mnuchin's comments on the dollar?
The fact that the Finance Minister spoke about the national currency creates conditions for abandoning the policy of a strong dollar, which is clearly on the radar of the White House. "The risk of intervention in the coming year is higher than usual," and clarifying "for now" "will not help alleviate any concerns," CIBC representatives write.
Strategists at Nordea Investment Funds believe that the Americans left the "open door for possible currency intervention" in order to create a potential threat to the Japanese and European Central Bank. Thus, they want to prevent the introduction of "more negative interest rates".
The chances of intervention against the dollar increased, according to Barclays. However, this is largely due to the continuing pressure of the owner of the White House on the dollar. More likely, according to representatives of Scotiabank, Donald trump will continue "verbal pressure", and the Fed will also talk about a political compromise, allowing the dollar to retreat.
A unilateral intervention aimed at reducing the value of the US currency in ABN Amro is called unlikely. However, if we take into account the unpredictable actions of the presidential administration, the scenario of intervention should not be completely excluded.
The drop in stock for four consecutive days had an impact on the pair USD/JPY. The trade balance report did not save the situation either. Quotes were close to its monthly low. Further decrease and testing of June lows near 106.78 is not excluded. However, on Friday, the pair becomes more expensive due to the recovery of the dollar as a whole and due to the improvement of investors' risk appetite. The stock market is growing, and there are signs of progress in trade negotiations between the US and China. Mnuchin assured that the dialogue continues and it is not necessary to believe everything the media write.
Perhaps, the best currencies on Thursday were the British pound and the Australian dollar. "Aussie" in conjunction with the US currency was located just below its 3-month peaks. It broke through the previous resistance level, which is an excellent "bullish" signal. This means that the rate may strengthen in the near future. Today, it is decreasing.
The growth of retail sales exceeded expectations, it was very strong spending excluding automotive fuel, which is showing strong demand. The indicators sufficiently offset the decline of the last two months, easing fears about the consequences of lower investment in the business. In addition, market participants were encouraged by reports that the EU may consider an alternative to the Irish backstop, which is a stumbling block for the two main candidates for the post of British Prime Minister. On Friday, the pound goes down. The British currency is aimed at a weekly decline, as the country is preparing to complete the race for the post of Prime Minister.
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