Markets are focused on the US election race. Today, Republican President Donald Trump and his democratic rival Joe Biden met during the first televised debate. According to polls, at the moment, Joe Biden has more chances to win than Donald Trump. However, the elections of 2016 proved that forecasts could be far from reality. Last time, polls showed a wrong number of people who supported Donald Trump. Now there is no reason to believe that they have suddenly become more reliable. That is why markets have faced increasing uncertainties.
Today, the US dollar index continued dropping from the two-month high of 94.70 logged last week. At the moment, both mid-term and long-term trends are downward. Of course, the situation may change, but at the moment, bears prevail. However, the upcoming event will determine the US dollar movement.
This year, the US dollar index has been swinging. The recent slump pushed investors to use the strategy that was out-of-date for many years. Thus, investors began to borrow dollars to buy riskier assets.
All these points to a change in investors' sentiment. Earlier, they used the Japanese yen to perform such deals.
During the last two years, the euro became really popular as the ECB pushed its rates to the negative territory. At the same time, in 2015-2017, the US dollar lost its popularity as the US Fed was actively raising the key interest rate. This year, a difference between the key rates in the US and Europe became smaller.
Investors choose to trade on the difference between exchange rates of low-yielding currencies that tend to trade steadily or decline, as this increases their profits.
Views on the US dollar
Representatives of Lombard Odier, a Swiss bank, believe that the US dollar is overestimated by 10% or 15%. During one year, they were waiting for a drop in the currency. The fact is that they are going to use the greenback to buy the rising currencies of developing economies in Asia, namely the Chinese yuan, the South Korean won, and the Taiwanese dollar.
Invesco specialists have the same view, especially amid a possible change in the key rates in the US. They are planning to use the US dollar to buy Mexican government bonds denominated in pesos. The peso jumped by 13% from its March lows. According to Goldman Sachs, it could generate an income of about 2.25% over the next year.
Many foreign strategists expect the greenback to decline in the coming years. This is due to the fact that the pace of recovery in other global economies is likely to outpace the growth rate of the US economy. It is worth noting that the bets that the G10 currencies will gain in value against the US dollar are close to a 2-year peak.
This year, the US dollar slumped by 2.3% against its major rivals. Its dynamic is likely to be the weakest in the last three years.
At the same time, not all analysts and investors foresee a gloomy future for the US dollar. Some economists suppose that the greenback will advance taking into account the results of the presidential elections and a mounting number of new virus cases in winter. Whatever it is said about the US dollar, it has proved several times that it is the best safe-haven asset.
If the US dollar starts rising, this may force investors to close their current positions and start buying the dollar. This, in turn, will further spur its growth. The US dollar index jumped by 1.9% last week on concerns about the uneven pace of the economic recovery. Another period of unrest in the stock markets this year may also contribute to its strengthening. News about the global recession may also boost the greenback.
