COPENHAGEN – Jul 4, 2019 – The dollar may face a weakening in the second half of the year, economists at Danish investment bank Saxo Bank are forecasting with macroeconomic forecast.
According to economists at Saxo Bank, the Fed [Federal Reserve] is playing catch-up, and if we see material signs of weakening in the third quarter, the Fed will reduce rates to zero at once and may even restart a quantitative easing before the end of the year, all of which points to a weakening of the US dollar in the second half of 2019.
The most notable development of the currencies during the early months of 2019 was the resilience of the US dollar, despite the reversal of the expectations of the Federal Reserve System, from the hawkish [which considers high inflation the biggest obstacle of the economy] at the end from December to dovish [which is aimed at maintaining economic activity and tolerates inflation] and then more dovish with each subsequent appearance of the Fed in 2019, John Hardy, the Saxo Bank head of Foreign Exchange Strategy, claimed.
Why would the dollar fall?
According to Hardy, the forecast for weakening the dollar is due to the fact that the US Federal Reserve System intends to follow an active policy of easing.
The Fed announced the latest rate hike at a meeting in December, deciding to raise the base interest rate to 2.25-2.5% from 2-2.25% a year. This was the fourth increase last year. At the end of the following meetings, the rate remained stagnant. In June, the chairman of the US Federal Reserve System, Jerome Powell, did not rule out that the Fed’s base rate could be reduced by the next meeting in July.
With an eye on gold
In addition, central banks in several countries have considerably increased their gold reserves, which may be a warning for the US currency. Some experts point out that because if countries fail to rely on fiduciary currencies, the fall in the dollar will be inevitable .
For years, the US has been the biggest gold holder. In April 2019, the country’s gold reserves amounted to more than 8,133 tonnes. That is the reason why experts consider that US monetary policy largely determines the rise in the price of gold.
It has been indicated that if the US Federal Reserve System decides to soften monetary and credit policy, the value of gold may continue to grow. If this is done, but in a less pronounced way, the price of gold will stabilize, and may even fall.