According to some experts, it will be better for the US economy and the dollar if the Fed refrains from raising interest rates at least until June 2019. Only, in this case, there can be prerequisites for strengthening the greenback.
In particular, the President of the Federal Reserve Bank of St. Louis, James Bullard believes that a too rapid increase in the interest rate of the US Federal Reserve may push the country's economy into recession.
Meanwhile, large investment banks believe that there is no reason to panic about this.
"Many market participants are concerned about the possibility of a recession, but consumer demand is high, and the growth of the US economy is expected at 2.5% this year. At the same time, we recognize that the Fed, Brexit, signals from oil prices and uncertain trade relations with the Middle Kingdom still influence investors' sentiments," said representatives of Merrill Lynch, an investment unit of Bank of America.
A similar point of view was expressed by Goldman Sachs.
"In the light of recent events, the prospects for a Fed rate increase are rather vague. At the same time, US GDP growth rates are still significantly higher than potential expectations, and consumer spending signals are encouraging enough," they said.
Thus, before the onset of a recession in the US economy, apparently, it is still far away, and so far we can only talk about a soft landing. Partial "disconnection" of the American government reinforces investors' concerns about a slowdown in the country's GDP in the first quarter.
As for the dollar, it demonstrates a rally, as a rule, when economic growth in the United States is ahead of the rate of expansion of global GDP. For example, it was in 2018, but in order to predict the further dynamics of the USD index, first of all, you should answer the question: which economy will lose momentum faster, the world or the US? According to the World Bank estimates, this year the pace of recovery of the first indicator will be reduced from 3% to 2.9%, and the second - from 2.9% to 2.5%. Despite the fact that the dollar now does not look like a clear favorite among the G10 currencies, the possible slowdown in the eurozone economy (from 1.9% to 1.6%) makes one look at the euro with caution. Therefore, even if the greenback continues to fall in relation to the single European currency, this reduction is likely to be short-term.
The material has been provided by InstaForex Company - www.instaforex.com