The dollar will remain under pressure

The dollar will remain under pressure

The US dollar remains under strong pressure for several reasons which are of a fundamental nature and are likely to last at least until the end of the first quarter.

The first reason is the obvious desire of D. Trump for protectionism in the US economy, which clearly fits with the idea of a low rate US currency. It is important to note that earlier, the president repeatedly pointed out that the "cheap" dollar is needed by the economy in order to successfully grow.

The second reason can be considered to be the actual statement in the post of the head of the Fed, J. Powell, who supports the cautious continuation of the course of J. Yellen to the normalization of monetary policy. It is most likely that the new head of the US Central Bank will be even more cautious in approaching the idea of continuing the cycle of raising interest rates amid the still weak dynamics of consumer inflation, which stopped in its growth well below the target level of 2.0%. This situation can lead to the fact that the regulator can pause the increase in interest rates. And this, in turn, will become a catalyst for further global weakening of the dollar on global trading floors.

The next reason is the frank statement of US Treasury Secretary S. Mnuchin on Wednesday, saying that he welcomes the weakening of the dollar and believing that it is useful for the national economy.

And the last, in our opinion, is an important reason for the weakness of the dollar in the form of an external factor. It is the unfolding of a sentiment in the currency markets. The sentiment is in the direction of expectations of immediate changes in the monetary policies of not only the world's largest central banks such as the ECB, the Central Bank of Japan and the Bank of England, but also the Central Bank of Canada, Australia, etc. From these institutions, they are waiting for the beginning of the termination of incentive measures and the continuation of the process of raising rates.

Given all of the above, we believe that in the short term, the US dollar will remain under strong pressure.

Forecast of the day:

The EURUSD pair is steadily growing on the wave of weakness of the US dollar and growth of expectations that the ECB will still have to stop measures of stimulation this year. From a technical point of view, it can be said that if the pair stays above 1.2400, it still has high chances, despite any outcome of the ECB meeting, to continue to increase to 1.2500.

The GBPUSD pair is mainly growing thanks to the positive expectations from Brexit's negotiations. It also supports the "weakness" of the US currency. It is likely that the price will continue to rise to 1.4450, despite the local overbought factor. The sterling, in our opinion, still has chances of growth on the wave of undervaluation to around 1.4700.