Global interest in the dollar is unlikely to fade away

On Monday, the US dollar rate remained under pressure against the backdrop of the outcome of negotiations between Washington and Beijing on customs duties.

The reduction in tensions between the two largest economies in the world led to a global weakening of the US dollar, which began even before the G20 leaders meeting, to lose the growth rate against the backdrop of first statements by some Fed members that it might be necessary to reduce the rate of increase in interest rates for signals of a slowdown in the economy of America, and then the very leader of the Federal Reserve, J. Powell, who made it clear that the level of interest rates is not far from neutral.

It also begins to escalate the tension and negative yield difference between the 3 and 5-year government bonds of the US Treasury, which signals the inversion of the yield curve, which previously clearly indicated an approaching recession.

In this situation, the question arises, will the dollar continue to decline further? So far, on the wave of optimism caused by the outcome of the G-20 summit, there is a demand for risky assets. But will it last long?

As we see the rise of optimism in world markets, including foreign exchange, will be limited. This is due to several reasons. In the first place, the agreement between Washington and Beijing in the trade war is more of a truce, since it was concluded only for 90 days, and not for a longer period of time. The "suspended" domestic political state of D. Trump, in view of his changeable nature, can lead to the fact that he will again begin to put pressure on China in order to obtain new preferences in trade. And this, in turn, may be the cause of a new wave of confrontation, with all the ensuing consequences for world markets. And in this situation, the US currency may again begin to receive significant support.

In addition, it should be borne in mind that the process of economic slowdown is observed not only in China, the United States, but also in the eurozone, the third largest economy in the world. Understanding such risks, it is unlikely that other central banks, such as Canadian, Australian or New Zealand, as well as many others, will follow the course of active increase in interest rates, which ultimately will keep investor interest in the dollar when the new economic downturn begins.

Forecast of the day:

The AUD / USD currency pair is consolidating following the RBA meeting above the level of 0.7340. If the demand for risk begins to subside, then the pair after falling below this level may fall to 0.7280.

The currency pair GBP / USD is trading above 1.2700. It is negatively affected by the prospect of a new government crisis in Britain due to the possible announcement of a vote of no confidence in T. May due to the disastrous situation with Brexit. If the price falls below 1.2700, then there is a probability of its decline to 1.2620.

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