The pressure on the US dollar comes from both sides, which in itself is a strong signal that, most likely, unless inflation suddenly turns up, it will restrain its recovery after a 10% decline to a basket of major currencies from the start of this year.
Will this situation change in the near future? Looks like no. The political disputes between Donald Trump and his opponents, if not to say enemies, in the US parliament, reached its peak and may become the reason for the president's non-signing of the government budget, which will undoubtedly have a negative impact on the dollar. The very enactment of this document will take place in September, and it is likely that we should expect pressure on the American currency up to this moment.
The next important reason the dollar's "chronic" weakness this year is low inflation, which, if it does not show signs of reviving, will lead to the Fed having to junk the expected third increase in interest rates this year. This is an important observation, since low inflation is putting pressure on the dollar from an economic point of view.
So, the American currency is actually under the crossfire from both a political point of view - the conflict of elites in the United States, which generates uncertainty, and with the economic aspect- is the lack of continued growth in inflation. The question arises whether the situation will change on the wave of publication of data on employment in the US, which will come out this Friday. We do not think so. Output values from the labor market is previously strong, which already show actual "full employment" and could not provide support. First of all, this is due to the fact that the Fed itself has made it clear to the markets that for it the situation with inflation, rather than the state of the labor market, is more important at the moment. That's why radical changes are not excited for the better and believe that before the Fed's two-day meeting on September 19-20, the weakness of the dollar will show itself in all its glory.
The only thing that can keep the US currency from further decline is its strong overselling from a technical point of view, as well as the ECB's likely decision not to stop providing stimulation to the European economy. This was noted earlier and it is considered necessary to report again. It is likely that the ECB will take a divided decision not to liquidate the incentive program completely, but it will significantly reduce it in anticipation of the resumption of inflation. This decision of the ECB can restrain the expectations of the markets that it will be followed by the central bank of Japan and the Bank of England, which will fundamentally change the market's expected changes in the monetary policies of the world's largest securities. So, it can support the dollar not against the background its "strength", but weakness of the major currencies traded against it.
Forecast of the day:
The EURUSD pair is trading above the level of 1.2000 against expectations of market participants that the ECB will decide to stop stimulus measures. Against this background, the price may continue to rise to 1.2100.
The GBPUSD pair is testing the level of 1.2975, the breakthrough of which will lead to an increase in the price to 1.3020. The growth of sterling is due to the upward trend of the euro in the foreign exchange market.