According to some experts, the current situation around the greenback strengthening provokes the risk of a slowdown or even weakening of the US economy. A significant strengthening of the dollar's position to its highest value over the past four months has become another possible barrier to the growth of the national economy, experts said.
Many experts are convinced that the attractiveness of greenbacks as a safe haven significantly increases the risks for the US economy. Fuel to the fire is adding concern about the virus epidemic, which accumulate tension and thicken clouds over the US economy.
According to analysts, the status of a reserve currency, like a safe haven asset, is both a blessing and a curse. The positive side of the coin is that the country issuing the main international reserve currency will still take its toll in the face of a budget deficit. The negative side is the fact that a constant trade deficit can weaken the US industrial base. In addition, experts and representatives of the Federal Reserve fear the negative consequences of the coronavirus epidemic. Experts say that this creates additional risks for the global economy. At the same time, the regulator is not configured to change either the interest rate or the monetary policy in 2020.
Analyzing the situation with the strengthening of the greenback, experts pay attention to the fact that the position of the issuer of the global currency has both significant advantages and side effects. The pluses of this situation are analysts to receive goods from abroad without the need to produce the same volumes of exported products. At the same time, other countries are deprived of such a privilege and must export their goods in order to pay for the import received. The US issuing global currency occupy an exclusive position in the global financial market. This situation is extremely favorable for the greenback, and it always seeks to take advantage of it, squeezing the euro.
Experts expect a strong correction regarding the European currency. At present, there are no signs of acceleration of the European economy, so a dark streak has come for the euro. According to experts, the ECB needs to either monitor the current situation or intervene again, using incentive measures to revive monetary policy. The current state of affairs makes the EUR/USD pair experience the strongest volatility, which was recorded on Tuesday, February 11. Yesterday, the pair dropped to 1.0911, trying to move to new heights. It partly did.
On Wednesday, February 12, the EUR/USD pair, rapidly gaining momentum, soared to 1.0922. Currently, the pair runs in this range, trying to climb higher.
According to analysts, the dollar has nothing to fear at the moment, because the US economy is showing signs of acceleration, which cannot be said about the euro. However, things can change in the long run, experts warn. They record a growing discrepancy between the position of the US economy in the world and the role of greenbacks in the global economy. Such a bias can upset the fragile balance between them, experts said. In the event of a reduction in US economic power, privileges for the greenback will remain less and less, experts conclude.
The material has been provided by InstaForex Company - www.instaforex.com