Experts have named the main reasons for the weakening dollar this year
Morgan Stanley analysts believe that the three main factors that pushed the dollar rate higher last year could lose their strength in 2019, thereby causing the US currency to weaken.
"The divergence in the economic growth of the United States and the rest of the world, the policy of protectionism, as well as a combination of fiscal incentives and a tightening of the monetary rate of the Fed led to a rise in the dollar last year," representatives of the financial institution said.
They said that the situation may be the opposite in 2019 and gave the following arguments:
First, the US monetary policy is changing. The Fed has refused to raise interest rates this year and plans to complete the program in order to reduce its balance after a couple of quarters. In addition, from the point of view of budgetary incentives, there are no tax cuts planned this year, following last year.
Secondly, the trade tensions between Washington and Beijing are easing. Now, the parties are negotiating at the highest level and there is a bit of a possibility that if they make a deal, this will avoid a mutual increase in trade duties.
Thirdly, it is expected that measures of fiscal and monetary incentives in China will lead to acceleration or at least to stabilize the pace of economic growth in the country over the coming months. This should provide support for a trade-dependent, including from the Middle Kingdom and the eurozone economy.
"Markets may not be prepared for the fact that these three factors will trigger a dollar weakening cycle. In addition, the United States seems vulnerable due to the large size of external commitments," noted by the experts of Morgan Stanley.The material has been provided by InstaForex Company - www.instaforex.com
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