26.09 - is dollar going to crush in the end of 2018?
Today we are looking into the possibility of dollar depression.
Greenback’s behavior has been a topic for multiple and seemingly endless peculations for months now. People talk about it as if it is the most unstable currency in the world. And it is somewhat true. With so many problems and shakes that dollar saw this year no one can blame the greenback for losing as many points as it did. But are those shakes the signs of a depression which is going to hit the currency eventually?
Strength of the greenback was mostly due to the fact that US economy was outperforming in the beginning of 2018. That gave dollar necessary boost. Just enough in order to fool those who speculated about weak American currency. But today, just like several weeks before we see the real face of a dollar. It is the currency that can’t really hold onto its gains for several days in a row. If euro and pound can go up and stay up, dollar is unable to do so.
And we say that it is totally possible for the greenback to finish the year just where it began it – at a low point. It seems totally possible for all the trade and political tensions to get to the greenback until that time. Right now the greenback is still riding with previous gains and unstable, although rapidly rising oil prices. But pretty soon there will be nothing left for the dollar except to be left face to face with the issues, created for it by Trump.
More risks are going to be added to UDSD trading during and after mid-term election which are to take place this November. With Trump is office, it is crucial for him to get supporters in the parliament, but it is really doubtful that people of America are going to vote for Republicans as it hasn’t been the tendency in the recent years. Opposition in the majority in American parliament is not something that is going to help Trump fulfil his plane so it is possible that dollar is not going to withstand the pressures from the tensions and frictions inside the country.
Behavior of dollar is exactly what world markets and trades do not want to see right now. The currency has always been rough around the edges. And yes, even though markets are driven by risks right now we don’t see how current USD behavior is going to save it.
If only there was something that could soften the greenback’s behavior for now. But unfortunately the picture in the world is not in favor of traders right now, but in favor of Trump’s ambitions. And it would be ironic if the man who promised to fix dollar’s position would be the one to bury all of the perspectives for it. And that is exactly where the situation is moving right now.
Despite all of Trump’s attempts to kill Chinese potential and see all of the investors and traders come to America it seems that his plan is failing with flying colors right now. Have you been watching Chinese stock market lately? With si many opportunities closed for them, Chinese turned the situation in their favor and opened up their markets to the traders even though the protectionism is rising in the sector.
First of all, sell off that began after all of the tariffs kicked in made the number of a lot of indices and stocks to go down. that process was also due to the crisis in the emerging markets. And as a result of the fall, the prices for the stocks became too attractive for traders to simply walk by them. Trump’s actions had an opposite effect – in the end they opened Chinese markets up to new capital. And right now the segment of the market looks better for traders than American one.
In the long run we would say that Chinese market has more potential than American one. Chinese efforts to connect their financial market to the worlds are just too strong right now. And in the long run this could create trillions of dollar worth of a demand for yuan which would give enormous boost to Chinese currency.
It is also worth mentioning that in Asian region China is the most attractive country for traders and investors than its neighbors like Taiwan and even South Korea that has signed free-trade agreement with the United States as recently as yesterday.
All and all it is safe to assume that in the long run China has more to promise to global traders than United States. We cannot shake off the feeling that China still has several trading and economic tricks up its sleeve while with United States we have nothing to do but wait for Trump to be out of the office.
With so many problems and changes with United States and China we have to remind ourselves to turn our heads and look at Europe every once in a while. Although euro and pound have been relatively stable in the latest weeks and even growing dollar didn’t knock them down there is still a lot going on the region. And, of course, the main topic is Brexit with May budding heads with European officials in Brussels. But when it comes to European politicians, Angela Merkel is the one we are looking at. And Merkel has said something that can ruin all the perspectives for pound after Brexit.
While London is panicking with the perspective on no-deal Brexit, Brussels fully admits that that it’s the possibility and, moreover, sees nothing bad in such perspective. Of course, there is nothing bad in such situation for euro. But for pound it practically is a death sentence.
Merkel has also expressed her opinion, saying that she doesn’t really understand what London expects of Brussels as there is no official statement on the matter. But it seems perfectly clear – London wants to be out of the Union but it wants to keep all the privileges, available for its member.
There are only about 6-8 weeks left for the sides to make official statement and wrap up the talks completely. Will that be enough for pound to adjust? Right now British currency seems to be doing just fine. It also seems to be in perfect sync with euro, as weird as it might be at the moment.
Britain wants pound to be a part on equal trade agreement of the EU, although EU keeps in stating that it is quite impossible is Britain leaves the Union after all. not the best scenario for pound.
We are too scared to imagine what can happen to the United Kingdom after Brexit. Although dollar may not present as much threat as was previously assessed it is totally possible that euro will be the thing pressuring pound as European currency is growing and preparing to go global. The battle of the two sides for he right of a strong trade bond and strong currency is a fascinating thing that puts world’s financial trade in horrible danger.
- by Anna K.