The high resistance of the US currency to negative impacts, in particular to the COVID-19 pandemic and the unchanging power of the dollar, can pass a serious test of strength by the end of this year. Many experts authoritatively declare a high probability of a sharp decline in the USD in the long-term.
The reasons for the collapse of the dollar can be either a large-scale influx of funds into the American economy, initiated by the Fed for "patching holes" due to COVID-19, or a decline in investor interest in the USD as a protective asset. The current tense situation is already negatively affecting the dynamics of the EUR/USD pair. According to analysts, the classic pair has accumulated potential for further downward movement and may test the level of 1.0700 in the coming days. Experts do not exclude the departure of the EUR/USD pair to 1.0625 - 1.0635, to update 3-year lows.
It can be noted that the EUR/USD pair has remained above the significant support level of 1.0800 over the current week. On Thursday morning, April 23, this currency pair began at the level of 1.0816, but advanced later. Later, the EUR/USD pair was seen trading around 1.0828 - 1.08829, and so far, as if in response to previous forecasts, it is testing the levels of 1.0787 - 1.0788.
Nevertheless, the current negative mood does not reflect too much on the US currency, unlike the European currency, which is constantly balancing on the verge of falling. The monetary authorities of the United States and the European Union are trying to mitigate the effects of the paralysis of their economies in their own way due to the rampant coronavirus pandemic. Thus, the States allocated funds for economic recovery once again: the ECB allocated € 750 billion, and the United States $ 480 billion, of which $ 340 billion will go to lending to small businesses, $ 75 billion to medicine and $ 25 billion to coronavirus tests. However, analysts say that large-scale business lending does not yet help much in economic recovery.
The current situation raises serious concerns of investors who carefully weigh the growing risks of a long-term weakening of the US currency. Economists at the Committee on Responsible Federal Budget (CRFB) are confident that the US budget deficit could quadruple and reach $ 4 trillion by the end of 2020 - early 2021. The rise in the American economy can also be hindered by the overwhelming size of the country's public debt. According to IMF analysts, the deficit in the US public sector will triple, and public debt will reach an impressive 107% of national income.
Experts say that the United States will have to weaken the dollar in order to normalize the situation. According to economists, such a strategy will help attract foreign buyers of treasuries. However, this situation does not add optimism to the dollar, but rather shakes its position. The current strength of the American currency, which investors are hoping for, may be deceiving. Experts do not rule out a deep drop in the dollar by the end of 2020. Experts believe that the stability of USD can undermine the actions of world central banks, whose strategy involves increasing dollar flows in the global financial system. Along with this, the Fed dropped interest rates far below the levels accepted by regulators in developed countries. Moreover, according to experts, this will significantly increase pressure on the dollar in the medium term.
Another obstacle to the growth of the American currency may be its price increase, which will hit medium and small businesses. It can be recalled that investors, companies and households continued to accumulate American currency in late February and early March 2020. However, this process was interrupted due to the announcement of the pandemic of the coronavirus COVID-19 and the rapid growth of sick and dead. The economies, one after another, went into a peak, and then tried to recover. Big business is going through this time with relatively compensable losses, while small and medium ones are aground. Meanwhile, the Federal Reserve partially solved the current funding problems by opening swap lines with 14 leading central banks. These measures helped a number of major currencies, in particular the euro and the pound, win back some of the losses.
According to experts at TD Securities, the Fed's aggressive reaction to the current crisis could lead to a sharp subsidence of the dollar at the end of 2020. It can be recalled that the United States has the highest interest rate in the world before the pandemic. Analysts emphasize that it supported the national currency. At the same time, investors were selling currencies with negative rates, primarily the euro, in order to buy the US dollar and earn higher returns. However, with the outbreak of the pandemic, the Federal Reserve cut interest rates to zero and began conducting currency interventions in the treasury bond markets, analysts say.
Despite the predominance of negative forecasts and bearish sentiments regarding the dollar, the market still believes in it. Investors prefer the dollar to other currencies, thereby supporting USD and giving hope that gloomy predictions regarding the US currency will not come true. It is expected that the financial hole into which the dollar may fall will be filled by the efforts of the US authorities and the Fed, and the ways of "patching holes" in the economy may be very unexpected.
