The US currency is losing a fourth day in a row and weakened in relation to the euro to the levels that were last observed in the second half of March this year. The fall of the dollar on the broad market seems to be a consequence of the last week`s meeting of the Federal Open Market Committee (FOMC).
The dollar remains under pressure and may depreciate a fifth day, its longest losing streak since August as investors' attention is now focused on the Tuesday speech of FED Chair Jerome Powell and on the weekend meeting of leaders of the G20 countries, including the meeting of US and Chinese presidents. Last week, the FED quite clearly outlined the risks for the global economy, which was also reflected in macroeconomic projections. They point to the possibility of cutting interest rates in the US by 50 basis points next year.
Nevertheless, interestingly, the market still thinks that at the end of July we will see a cut in the federal funds rate by 25 basis points, and what's more, it is 100 percent convinced. Whether cutting will actually take place next month may depend on what will happen this weekend. If there is no agreement on a trade agreement, then easing the monetary policy may take place very quickly. In turn, the greater the chances of ending the trade war, the lower the chances of significant monetary easing.
The G20 summit also affects the option market. Investors are willing to pay higher prices for being able to protect themselves against unfavorable movements in the currency market. This may mean an increase in the expected volatility after the weekend. In turn, the increase in expected volatility is not favorable for the carry trade, which could have been carried out on the US dollar, which seems to only deepen its decline.
It seems that the Polish zloty is also taking the advantage of the current situation, which has already strengthened against the dollar to the levels observed at the beginning of the year – 3.73 PLN. Meanwhile, a month ago the USD/PLN exchange rate was in the area of 3.85 PLN. It is possible that the zloty may show even more strength in relation to the USD and strengthen to the level of 3.62 PLN, which would be the lowest since September 2018.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
