Weak dollar and the factors that prevent its strengthening
The main driver of the world currency market remains the dollar. Therefore, it is not surprising that all analytics and forecasts for the future period depend on changes in the U.S. currency. Given the new policy from the U.S. government, a number of experts put forward their vision of how the market will develop, whether the weak dollar can restore its position as the main and strong asset.
After assuming the office of the president, Joe Biden was among the first to consider the issue of stimulating the economy of the country. A total of $1.9 trillion was allocated for these measures, which included one-time payments to the population. The latter were increased to $1,400. Unemployment benefits were $400 per week, with a minimum wage of $15.
It should be noted that under standard market growth conditions such expenditures have a positive effect, but now the situation is different. The increase in yields is observed exclusively for Treasury bonds.
The position of the Fed, which has no plans to expand its quantitative program in the near future, also raises a question so far. While every month the regulator buys mortgage bonds and treasury bonds in the amount of $120 billion. According to experts, this amount will not be able to fully meet the planned fiscal measures.
The increase of yield of treasury obligations contributes to strengthening of dollar, but such tendency will be supported only in case FRS will refuse from the idea to reconsider the quantitative stimulus towards increase. Despite the fact that since the beginning of the year the dollar has been showing good dynamics of strengthening, by the end of the period it will decrease.
The U.S. currency is not only a reliable asset, in many cases it plays the role of a pressure factor, which is used by Washington. There are many examples of this, the most striking being the relationship with China and Russia. The imposed sanctions are painful not only for a particular state, but also for its partners. Therefore, the EU wants to revise the law concerning the protection of local companies from the impact of sanctions of third countries. In addition, the EU introduces various measures to help strengthen the euro and take a larger share in world trade.
So far, on the global market, dollars have the upper hand in payment transactions. China, which uses this money for settlements, contributes to this to a great extent.
Despite a number of pessimistic forecasts, most analysts agree that the dollar will not give up positions for a long time. The euro is not yet strong enough to become a global market leader, and the yen, though actively promoted by the Chinese government, occupies a small share of mutual settlements.