A few words about the US Dollar Weakness

The US Dollar has been out of luck recently. The “presidential” rally in the name of Donald Trump that took place last autumn was replaced by inertial depression, which later transformed into a true anti-Dollar trend. Ocean of scandals relating to the White House and the people that live there provided additional strengths to the dollar “bears”. By the end of August 2017, the American currency has moved to the levels, where it hasn’t been seen since January 2015. They are the lowest over 2 and a half years. And it may well be that it’s not the limit.

The world’s biggest investment houses speculate about very different targets of the US Dollar weakening. For instance, 1.35 from the Lloyds Bank, 1.30 from the Standart Bank, and 1.25 from Chapdelaine. All of them agree that the Euro is still underestimated against the USD, and the “weak Dollar dynamics” may continue for the next two or three years.

Here is everything: real fundamental reasons, para-political fears, and other speculative activities. For example, early in the operations of the Trump’s Executive Office, they said that the USD was too strong and it prevented the president’s reform from being implemented. And what a coincidence! The USD started a long downtrend.

Among all fundamental reasons, one can name quite mixed statistics from the USA, such as industrial production and the PMI. But on the other hand, the inflation trend is stable, although not too strong, and the employment market shows the best numbers over the last several years. The USA Fed’s monetary policy and its targets also provide support: the key rate increase is already included in prices and the oncoming decrease in assets will cause the decrease in liquidity. It is good for the American currency, but it is very likely to remain under pressure due to the interests of the big-time politics.

In the next 12 months, the Fed will smoothly tighten its fiscal policy, the key macroeconomic indicators will slowly improve, although the PMI may remain in the “turbulence zone” due to the distrust in the political order. The target for the unemployment is 4%, the average annual GDP growth may be 2.5 – 2.7%, and the inflation rate – 1.6 – 2.1%.

This article is written by Dmitri Gurkovskiy, a senior analyst at RoboForex