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The dollar does not see competitors! People use American currency because other people do the same.


Perhaps someone offered Germany and France about € 500 billion in assistance to the eurozone countries affected by the pandemic and caused a desire to buy the euro, but for a stable EUR / USD rally, efforts of both parties are needed. Investors need a strong belief that the time has come to sell the American dollar. But can something that has not come for many decades come to them now? Neither the expansion of the Fed's balance sheet, nor the growth of public debt, nor the enormous deficit of US foreign trade did not discourage market players from wanting to keep greenbacks in their portfolios. The dollar as a language or social network. People use it because other people use it. They learn English as a language of international communication or hang on Facebook - a place for supranational communications.




Despite the constant decline in the share of US GDP in the global indicator, the proportion of greenbacks in conversion, payment and trade operations has not changed much. Central banks still hold about 60% of their foreign exchange reserves in US currency. One of the reasons for the primacy of the dollar is the lack of alternatives. Neither the euro, nor the Chinese yuan, nor Bitcoin is able to compete with the buck. Its dominant role in the global financial system can explain why investors look into the Fed's mouth. Much depends on FOMC solutions. And not only in the States. 


The dynamics of the share of the US economy in global GDP


Source: Bloomberg.


The minutes of the April meeting of the Federal Reserve somewhat cooled the hot heads of EUR / USD buyers. The Central Bank has seriously discussed the possibility of using the Japanese experience of targeting the yield curve. The strategy involves keeping debt rates at a certain level, while BoJ does not require as many resources as were expected when QE was launched. This means that the Fed balance will not grow too fast. Good news for the US dollar. The Federal Reserve already reduced bond purchases from $ 75 billion per day at the peak of market shocks to the current $ 6 billion per day. At the same time, the colossal $ 1.3 trillion poured by G7 central banks in April into the global debt market seems to remain a record for a long time. 


Dynamics of asset purchases by central banks


Source: Bloomberg.

Support for the "bears" on EUR / USD had an increase in tension in US-Chinese relations. The Senate unanimously passed a bill on the mandatory audit of companies issuing shares traded on US stock exchanges. Previously, some corporations from the Middle Kingdom did not allow American auditors into the internal kitchen. Now they may lose the ability to list their securities in the States. 

However, a few days ago, Donald Trump said that if the Chinese were not allowed on the New York exchanges, they would go to London, Frankfurt or Tokyo. Sober reasoning of the owner of the White House. Unlike his Twitter comment that Beijing allegedly spreads misinformation to prevent him from being re-elected to the post of US president. After which it will be possible to continue to rob America. The “Bulls” on EUR / USD took a step back, however, while the pair quotes stay above 1.09, they do not abandon their intentions to resume attacks.


LiteForex analytics  Dmitry Demidenko



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