The US dollar temporarily halted its decline on Wednesday. This was facilitated by the growth of market interest rates. However, the fragile balance did not last long, and so, the national currency continued to move down.
During the Asian trading session on April 20, the US currency reached its lowest level in the last seven weeks, but stabilized in European markets. The specified currency was helped by the balance of gains and losses against global currencies, as US interest rates remained in a narrow range and vaccination prospects in the EU improved.
The fall in the yield of US government bonds played an important role in the dollar's weakening. This month, the USD has lost its positions as US bond yields plunged from 14-month highs of 1.776%. Experts believe that the decline of the currency and yields indicate that the Fed is not in a rush to tighten monetary policy.
On Tuesday evening, the yield on the 10-year US Treasury bonds (US Treasuries) traded around 1.60% and declined to 1.58% from the previous level of 1.59%. It also fell to 1.57% from the previous 1.61% throughout the day. Based on analysts' observations, this indicator has been declining for three consecutive weeks. On Wednesday, this trend continued, dragging the dollar with it. It can be recalled that the USD rate follows the dynamics of the yield of the US Treasury.
Experts remain negative regarding the medium-and long-term prospects of the US currency. They expect it to continue to fall in the EUR/USD pair, especially in connection with the improved prospects for the European economy on the background of successful vaccination against COVID-19. TD Securities experts believe that the currency and interest rate markets may be relatively calm in the near future, as the Fed and the ECB keep their key rate policies unchanged.
Meanwhile, positive news for the Euro currency is the receipt of an additional 100 million doses of the COVID-19 vaccine produced by the pharmaceutical companies BioNTech and Pfizer. TD Securities is confident that the recovery of the European economy will go faster due to the active immunization of the population. As a result, it may overtake the US economy, displacing their national currency. The specialists are also sure that the improvement in the economic situation in a number of countries will further reduce the USD. According to experts, the dollar has worked out everything from the fiscal stimulus program in the amount of $ 1.9 trillion, and now it will have to be content with little. Goldman Sachs analysts also stated that the current situation is conducive to such a scenario, as the prospects for the EU economy are improving, and the dollar is expected to resume the downward trend in the near future.
In the short-term planning range, many experts adhere to a negative outlook for the US currency, emphasizing its overvaluation. Based on the technical analysis, the dollar continues to retreat. Analysts consider the threat of a decline in market sentiment due to the record incidence of COVID-19 to be the medium-term risks of this decline. The danger for the dollar "bears" is that its decline often occurs amid high-risk sentiment. However, there is no need for risk now, as the global and US stock markets are at their peak on a number of indicators.
Analysts consider the dollar's current weakening to be the most noticeable trend in the "Big Ten" (G10) currencies. On Tuesday evening, the EUR/USD pair simultaneously reached a new high of 1.2079 and then slid to 1.2025. This morning, the instrument remained around the level of 1.2028. According to analysts, the pair has already completed its correction in the range from 1.2350 to 1.1700 and it will decline again soon.
Experts concluded that the US dollar is supported by the placement of US Treasury bonds, planned in the near future. They say that these measures will halt its downward movement. This positive mood is supported by the improved outlook for the global economy in the second half of 2021. Many market participants are confident that active vaccination against COVID-19 will help defeat the virus and lead to rapid economic growth around the world.
The implementation of such a scenario may strengthen the fall of the dollar on the growth of risk appetites. In such a situation, the decline will occur not only against the euro, but also against other currencies. However, experts believe that this option is unlikely. The dollar is far from devaluing, and the euro is far from winning in the global financial market. In view of the endless lockdowns in a number of European countries, the pound may decline again. It can be noted that the EU economy may fall into a recession for two "failed" quarters. If this happens, experts highlighted that the euro's price is unlikely to increase.
In terms of market interest rates, analysts believe that they will not help the dynamics of the US currency. Their role is just to help the USD temporarily, which is looking for ways to get out of the hole, despite its decline.
