FX.co ★ Three main reasons that put pressure on US dollar

Sharp declines in interest rates, a flood of liquidity from the Federal Reserve System to cushion the economic impact of the COVID-19 indicate a drop in the US dollar in the future.

Gloomy future

The future of the US dollar looks bleak. The daily rise in the number of people suffered from coronavirus, tensions with China, as well as the abandonment of the US currency by investors put the US dollar at risk. Experts suggest that the greenbacks will fall in the near future.

Since the beginning of July, the US dollar has lost 0.7% against a basket of other currencies. At the moment, it is more than 6% below the peak reached at the end of March. The US dollar is weakening because the United States faces more serious risks than other major economies.

Unlike the US, Europe's economy is gradually resuming its work. What is more, the euro's prospects has been boosted by the development of an European Recovery Fund. At the same time, the Chinese yuan is gaining momentum.

The United States removed some restrictions on movement and, as a result, economic indicators recovered. Nevertheless in the country was fixed maximum one-day rise in the number of COVID-19 cases since the beginning of the pandemic. This, in turn, will lead to further restrictive measures and less robust economic performance.

Political risks

Moreover, Congress must prolong the emergency unemployment benefits program by the end of the month. Otherwise, the November US presidential elections could negatively affect the country's economy.

Donald Trump's rating is significantly below Joe Biden due to the riots and widespread complaints about the measures taken to combat the coronavirus. It seems that democrat Joe Biden will remove Trump from the pedestal.

George Saravelos argues that the Democrats' victory in the presidential election would negatively impact the US dollar. Moreover, the demand for greenbucks as a safe-haven asset is weakening.

FRS fault

Olivia Frizer, head of international marketing research at BNP Paribas, says the US dollar has lost its popularity among investors. Previously, in order to buy american assets, investors took out loans in low-benefit currencies such as the yen and the euro. Now everything has changed. This will lead to the growth of the european and chinese currency.

Now, FRS negotiations about the control of the revenue curve, which includes the central bank setting limits for Treasury incomes and market intervention to contain those restrictions, have also made it clear to investors that rates are unlikely to grow anytime soon.

Keith Jax, head of monetary strategies at Societe Generale, is confident that actions of FRS have led to the weakening of the US dollar.