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US dollar strength will begin to wilt?

July 12, 2020

The current situation with coronavirus causes many concerns around the globe. Not only regular people but also experts are not sure of the situation on the currency market. At the beginning of the year, we have seen a volatile situation with the US dollar. However, with potential governmental stimulus USD has come back on tracks. Will the situation stay the same by the end of the year? Before thinking of COVID-19 we need to remember what else influences the US dollar. Among the key points are: 

 Politics

With pandemic ramping around the world, US politics influence the US dollar as never before. Some experts point to the possible theory that President Trump will not manage to get his previous promises done. Such uncertainty in politics will leave an impact on the strong position of the dollar and, as a result, will push the selling of the US dollar. 

 US Economy

It is clear that if the economy is strong and stable, then the currency of the country will also be strong. To save the situation the US government is planning to launch a stimulus package. However, is it a good idea? 

 Imports and Exports

The United States is one of the biggest importers and exporters around the globe. The country’s main competitor is China. It is a known fact that if your country has bigger imports rather than exports then your country’s currency is going to go up. However, with the trade war with China, this situation becomes more volatile in comparison to other big currencies. 

US dollar vs. COVID-19

US dollar vs. COVID-19
US dollar vs. COVID-19

When the number of COVID-19 suddenly has risen, many people have lost their positions. Then the situation touched the economy. However, as the situation has not done this the US dollar itself. We even saw how it reached its top point for the last three or five months. In comparison with other currencies, the American dollar is doing much better. 

Some experts suggest the idea that such a rise is due to the US dollar status of a reserve currency. Put it simply, if we are going to face the next crisis investors will invest their money in the American dollar against all odds. 

There is a peculiar thing about the US dollar that occurs time after time. Even if the dollar itself is weak, people still wish to have and they will because dollars can be printed without putting at risk the United States economy. Some economists do not understand such unjustified privilege. 

For instance, Federal Reserve with certainty decided to put many trillions of US dollars in liquidity. This way they are trying to stop the financial system from weakening the value of the dollar.   Nowadays, people think more about financial safety than about other things. 

Wind of change

In terms of the global exchange market, the currency is one of the most traded among others. Recently, the Fed (Federal Reserve System) has confirmed they would support currency swaps with some other well-known central banks. This way they want to enhance existing US dollar reserves.  

Federal Reserve System has notice how the absence of the American dollar in rising markets worsened their dept. Many experts agree with the idea that not many businesses in new markets have the opportunity to save from the situation.

Since the beginning of January, the US dollar has risen by 3.5% in comparison with the euro. This is mostly due to an offer from MAS of $60 billion to banks from a recent swap agreement with Fed. Another crucial moment is the falling of oil prices. It helped the American dollar rise about Russian ruble, Norwegian krone, and the Canadian dollar. Thanks to their economies’ connection with petroleum. 

There is also a controversial situation. On the one hand, the American dollar is supported by a strong economy. On the other hand, unsatisfied President Trump sees the situation with exports. For now, all experts from the United States are more expensive in comparison with other countries-opponents. 

While having a trade war with China,  Donald Trump has made the situation a little bit difficult for US companies to compete with China. To smooth somehow the situation with the impending crisis and closure of many businesses. Federal Reserve System has cut the benchmark interest rate to zero. 

Some experts notice that with enormous unrest caused by the COVID-19 the situation in the world could be completely changes and the dollar would not be leading as before. Future weeks should put at test the strength of the US dollar. Whether it will manage to keep a balance or be jeopardized. 

Many investors actively discuss how the lower world recession will be. If the US faces economic difficulties, the situation in other countries will be even worse. Although economies of some countries are already facing a downturn, the United States is still waiting for the full impact from coronavirus. As we can see pandemic influences not only the health of humanity. 

Forecast

Currencies
Currencies

Previously the stability of the US dollar was due to geographical isolation from other big countries and thus from the coronavirus. However, bow we see a completely different picture. The US has become a leader of many cases around the globe. Somehow, the American dollar still seems to be unaffected by the pandemic.  

Some forecasts from experts show that situation with other big currencies, although rough now, will be smoother later in 2021. In June Sterling will be lower in comparison with the American dollar at 1.22. By the end of 2021, Sterling will rise to 1.27. In terms of the euro, this currency will need more time to pass all possible dangerous regions. In the second half of this year, the euro is going to have 1.06, however, by the end of 2021, we will see how it will go up to 1.10. While the Japanese Yen will be the main currency to adjust famous currency pair  USD/JPY, the forecast shows that this currency pair will go down from 108 to 105 in the second part of 2020. However, in a month the pair should again go up to 110 at the end of the next year. 

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