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Maintain Economy ― When the dollar will grow?

The last few weeks the us dollar is markedly reduced. For the past couple of months, the U.S. currency is losing its position against its major competitors — the Euro, yen, British pound. Only since the beginning of March the dollar lost as much as 4%. This is the worst performance since 2011, it Now remains to understand how lengthy the process of weakening of the U.S. dollar when the U.S. currency will start to win back their positions. About it says economic analyst Grigory Beglaryan in the program «Replica».

After the recent FOMC meeting the USD major competitors has shrunk. The composite index of the dollar since the beginning of March, losing more than 4%. And this is the worst figure for the last five years.

The main reason for the weakening of the dollar in the global currency market can be considered a significant reduction in the level of market expectations regarding the pace of interest rate increase by the fed in the current year, since the local recession in the us economy and instability in the world has forced the Federal reserve to soften its rhetoric and to take a break in this cycle of monetary tightening.

Let me remind you that at the end of the last (March) meeting, the fed gave a new benchmark interest rate this year and now predicts only two increases the rate instead of the promised back in December last year, a maximum of four raises.

Now investors are trying to understand whether such a significant reduction in the Outlook for interest rates the final completion of the rally of the dollar or is this just a temporary respite within the overall trend of the dollar strengthening?

In my opinion, it is only a temporary respite. The uptrend for the dollar remains, and the resumption of growth in the dollar — it’s only a matter of time.

Even simple hints American regulator about the possibility to take a pause in the cycle of monetary tightening or willingness to raise rates at a much slower pace already stabilized the situation in global financial markets and improved conditions in the commodity sector.

Assuming stability in the global economy continues and commodity prices (primarily oil) will not return to its previous lows, the economy of Europe and emerging markets, including China, will be demonstrating good results.

In this case, there is no doubt that the strong recovery will occur in the American economy, which means that the risks of renewed inflationary expectations, with a stronger economic recovery than expected by the Federal reserve.

Thus, external factors influencing the fed’s decision, this time may allow the Central Bank to raise this summer, and even if the regulator will pursue a policy of gradual tightening, the fact that the possibility of improvement will start to actively support the dollar.

If we assume that during April you will start to receive positive macro statistics on the U.S. economy, and data on inflation expectations among households in the U.S. will show some improvement, these arguments will be enough investors believed in the possibility of rising interest rates and the willingness of the fed to make this move in the coming months. In this case, we will see an instant reversal of the dollar, and the dollar will resume its uptrend first, against the Euro and the yen, and later against the currencies of developing countries.

It is logical that in case of resumption of growth of the dollar on the world currency market we will see pricing pressure in the sector of commodities and the price of oil and other raw materials again begin to decline. At least at the initial stage of strengthening of the dollar against the Euro, so be it. In this case, it is easy to guess that a combination of factors, «a surging dollar and falling commodity prices» will negatively affect the value of the Russian currency and the only question the extent of that negativity. But to understand how this would harm the Russian currency, we will be able in a few weeks. Then that will sort it out.