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04.09.2019 01:34 PM
Dollar interrupted flight

The end of the trading session on Tuesday, September 3, was marked by a sharp collapse of the US dollar. Meanwhile, the US currency interrupted a six-day growth after the Fed's comments about a possible rate cut of 0.50%.

According to James Bullard, head of the Federal Reserve Bank (FRB) of St. Louis, the massive decline in treasury yields and the negative impact of the trade war on the US economy require decisive action by the Fed. According to the official, the current level of interest rates is unnecessarily high and needs to be adjusted. Bullard proposes not to move in small steps, but to immediately reduce the rate by 0.50%. The financier is confident that such a reduction in rates meets market expectations.

Experts believe that such a decision was caused by concerns about higher risks for the US economy. The comments of Bullard and his colleagues, who supported the rate cut, brought down the dollar that has shown steady growth for six consecutive sessions. At the same time, the European currency began to rise in price relative to the American, which was previously declining.

Many market participants believe that the regulator will reduce the rate by 50 basis points (bp) this month. This decrease is already included in the price of most financial instruments. The current situation also contributes to the weakening of the US currency.

On Wednesday, September 4, the US dollar depreciated against the euro. The EUR/USD pair is in the range from 1.0986–1.0988. The European currency is gaining strength and strengthening. After the statements of J. Bullard, the American currency turned sharply in the direction of the fall and reached 1.0926. This has been the lowest result in recent years, experts emphasized. The previous peak that the dollar managed to conquer was at 1.0977.

Nevertheless, analysts are counting on the restoration of the lost positions of the American currency. The solution proposed by the head of the Federal Reserve Bank is currently a wish, not a guide to action. The question of its implementation remains open, experts summarized.

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Larisa Kolesnikova,
Analytical expert of InstaForex
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