«The interest of the dollar falls» why the change of rate of the U.S. Federal reserve weakened the U.S. currency

«The interest of the dollar falls» why the change of rate of the U.S. Federal reserve weakened the us valuutakomitee link
16:36

Vladimir Agoev
Thursday, 31 October, the US dollar is declining against major world currencies. The reduction occurred after the rate cut of the us Federal reserve. The actions of the Central Bank of the States needs to bolster the flagging economy of the country, however, make dollar investments less attractive to investors. How to change the exchange rate to end the year at RT.

  • © ADEK BERRY / AFP

The U.S. dollar declining to record the major world currencies. Corresponding to the DXY index fell by 0.35% and trading near the lowest level since the end of August — 97 points. Such data results in the international exchange ICE.

The American currency fell in the global market after the meeting of top management of the Central Bank of the United States. Before the Committee on operations in open market FRS of the USA in the third consecutive cut interest rates by 25 basis points to 1.5–1.75 percent per annum.

«The dollar reacted to the weakening that occurs continuously when the reduction of the rate. Interest to issued to dollars and dollar assets falls due to a decline in their yields and expectations of more cheap borrowed money,» — said in an interview with RT, the analyst of the debt market IK «Oriole Capital» Ilya Grigoriev.

The decline in interest rates in the U.S. analysts attribute the record-breaking recession in the American economy. According to estimates, Bureau of economic analysis States, in III quarter growth of GDP was 1.9%. The value was the lowest since the beginning of 2017. Rate cuts should reduce the cost of loans for businesses to increase investment and thereby support the economy.

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Finding a balance: how to change the US dollar to the end of the year

Thursday, 19 September, the rouble has risen in price at the auction of the Moscow exchange. Experts explain this by the weakening of the dollar on the world market….

«The US position have seriously weakened the trade war with China. Therefore, the fed to stimulate economic growth already since July, the third time lowers the base rate,» — said in an interview with RT Deputy Chairman of the management Board of CB «LOKO-Bank» Andrey lyushin.

As a result of intensification of the trade war with China, the us economy could face recession in the second half of 2020. This is stated in a recent study by the American Duke University. First, GDP growth is actively supported tax reform trump. But now the economy has less incentives. About this in an interview with RT told the portfolio Manager QBF Denis Ikonnikov.

«From the beginning of 2019 factor tax reform has exhausted itself, the profits of American corporations is growing double-digit pace. In 2018 each quarter, the average was up 20% compared to levels in 2017. Now the average growth rate does not exceed 10%,» said Ikonnikov.

Although the reduction of interest rates, the fed must support the economy of the state facing the threat of recession, the policy of the regulator reduces the attractiveness of the dollar for investors. Therefore, the participants of the world financial market are beginning to actively buy the currency and securities of those countries which have high interest rates. Thus, players can obtain a higher return on investment.

The results of the fed meeting and the global weakening of the dollar had a positive impact on the Russian stock market and national currency. At the opening of trading on October 31 Mosberg index increased by 0.8% and for the first time reached the level of 2936 points. At the same time the dollar fell 0.2% to 63.7 per ruble.

According to RT interviewed experts, the Russian national currency has a chance to further strengthen against the dollar until the end of the year. As expected, in the coming months the fed will cut the base rate, and thus further pressure on the American currency.

«It is worth noting that Donald trump has a lot of pressure on the head of the fed Jerome Powell. As has repeatedly stated the us President to stimulate the economy and business can only bring rates to zero or negative value», — said Andrey lyushin.

According to the assessment of Denis Ikonnikov, in addition to the global weakening of the dollar in the near future some support for the ruble may also have a rise in oil prices. At the same time, the influence of this factor on the Russian currency will be limited by the fiscal rule, which provides that during the growth of commodity quotations the Ministry of Finance buys foreign currency and thereby puts pressure on the ruble. In the case of the collapse of the energy market, the Ministry stops operation and the pressure on the ruble weakens. As a result of such action decreases the dependence of the national currency from oil.

  • The US President Donald trump
  • Reuters

«Although the ruble is already largely detached from oil prices, a small dependence still persists. In many respects the future dynamics of commodity quotes define solutions to deal OPEC+,» — says Ikonnikov.

According to the expert, in favor of the ruble will also play a record growth of the Russian market of government debt securities. To date, the government bond index (RGBI) is trading near historic high of 150 points.

Denis Ikonnikov predicted that before the end of the year while maintaining the current conditions, the dollar will continue to be in the range of 63-65 rubles.

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