According to some analysts, the dominance of greenback in the foreign exchange market now looks the most precarious since the beginning of 2018.
The US dollar fell by 2.1% this month against a basket of six competing currencies. If the situation does not change, then October may be the worst month for the USD since January last year.
NatWest Markets experts believe that the US currency is threatened by the prospect of a positive Brexit outcome, which will damage the safe-haven assets, as well as the likelihood of a more significant reduction in interest rates in the United States.
"The long-term bullish outlook for the dollar is questionable since some of the key themes of the market has reached its peak of influence. Also, the Fed's plan to buy three-month US Treasury bills to reduce the repo market deficit could be a significant deterrent to the greenback over the next few quarters. During this period, the Fed may again reduce interest rates in December and March," they noted.
Meanwhile, the market is discussing the duration of European QE. From November, the ECB intends to buy €20 billion worth of assets until inflation is defeated. However, if we proceed from the rule of 33% of the volume of bonds issued by one country, the program can be completed by the end of next year or even earlier if the situation in the eurozone economy continues to deteriorate. At the moment, the European Central Bank has already bought 31% of the total debt of the Netherlands and 30% of the debt of Germany.
Thus, the potential for easing the ECB's monetary policy is limited, while the Fed is quite wide, which is a serious "bullish" factor for EUR/USD.
Along with the ECB's inability to give the market more than it gave in September, another trump card for the euro is the progress in negotiations between London and Brussels regarding Albion's exit from the EU. Last week, the parties announced a Brexit deal, but it must be approved by the British Parliament. The vote on the draft "divorce" agreement in the House of Commons, which may take place today, will be a key driver of changes in the quotes of EUR/USD. The adoption of the document will allow the main currency pair to gain a foothold above the 12th figure, while another defeat of Boris Johnson in Parliament will lead to a correction in the direction of 1.112 and 1.108.
The main problem for B. Johnson may be the amendments that the opposition will make. Most of them are unacceptable to the government. Their adoption may lead to the fact that the Cabinet itself will remove the document from the vote.
The final word on the issue of which amendments will be approved before the vote rests with the Speaker of the House of Commons, John Bercow, who did not allow voting on the deal with the EU yesterday.
Rejecting the document or making significant amendments to its text is likely to mean postponing Brexit for several months, as there are only nine days left before the deadline for its implementation. The British government says it has stepped up preparations for a no-deal Brexit, but experts say the likelihood of such an outcome is low.
The GBP/USD pair rose above 1.30 for the first time since May but then retreated from five-month highs in anticipation of a key vote on the deal of the Prime Minister of the United Kingdom regarding Brexit.
"The reaction of the market should be simple: the pound will rise if the bill passes, it will fall if this does not happen. Outside of today, it seems unlikely that a majority will be gathered in the House of Commons to call for a new referendum, which the Laborites are likely to request," RBC currency strategists believe.
