Will the Dollar Lose 20% of its Worth in the Years to Come?

Market Leader informed

This will happen after the US Federal Reserve System (the FED) continues its effort aimed at loosening up its credit and monetary policies, according to influential American financial analyst Bill Gross. He believes that emission of trillions of dollars will push the dollar’s worth down worldwide. This will result not only in a larger amount of dollars but also in lower yields for investors. Consequently, foreign investors might wind up their dollar-denominated assets.

 

Experts and investors are expecting the outcome of the meeting of the Federal Open Market Committee scheduled for 2-3 November.

Experts believe that this meeting will make a resolution to commence the second stage of currency stimulation that involves a buyback of governmental bonds and other assets worth from 500 billion to 2 trillion dollars from the market. A quick note: in late 2008 the FED made an assignment of 1.7 trillion dollars for purchase of treasury bonds and mortgage-backed securities during the wave of the financial crisis that struck the US. Now everyone is expecting a new monetary emission in the US economy that FED President Ben Bernanke made a rather broad hint at.

 These measures justify a number of negative signals. To start with, it is the unemployment rate that has stopped at the mark of 9.6%. Also notably, US Q3 GDP forecast has been lowered to maximum 2%. Basic personal spending has also increased by 0.8%. Emission is expected to last a couple of months. The FED will allegedly spend about 80-100 billion dollars each month for purchase of securities. In the meantime, experts will be monitoring the market to make sure that this program really has a positive effect. Unfortunately, the US economy has no alternative way out.

 

A number of experts are of the opinion that another round of emission might not result in a cheaper dollar. According to FxPro Analyst Aleksandr Kuptsikevich, about one trillion dollars has already been injected into US economy which, however, didn’t prevent the dollar from getting stronger vis-à-vis the Euro at 1.19. He also points out that the American currency lost 19% against the Euro in June through mid-October and 62% from 2002 through late 2004. If the FED’s statement is made in a flat manner, this will add confidence to investors and experts.

 Experts of the Masterforex-V Trading Academy point out that the new emission does not target the US domestic market. For example, Yevgeniy Olegovich Antipenko (ATEI), Head of the VTMT Faculty, points out that the US has no additional capacity to increase leverage because loan levels are so high that liquidity fails to reach the real sector. Consequently, the new emission will gush into the global market bypassing the US oversaturated market to intensify global inflation. But it should be emphasized that this step will bolster up global economy and give impetus to international economic growth. Countries that hold American debt and currency reserves have ended up in a difficult situation. On the one hand, they are forced to accumulate the American currency in order to prevent the dollar’s depreciation, on the other hand, they also have to strengthen their national currency somehow. But this will cause inflation in these countries to speed up and competitiveness to deteriorate through inflation.

 Another expert of the Academy, Maksim Aleksandrovich Gan (Santyago), Head of the Volume Analysis Department, has added that the dollar is falling against major global currencies. Rumors of currency stimulation are becoming an additional external background that supports allies’ bullish trend against the dollar. For example, a famous saying applies now to the Euro market: ‘Buy the rumor…’ The single currency is demonstrating confident growth. “The (credit) crisis will be over after the value of all assets becomes minimal and after financial institutions stop reporting their losses’ - Maksim Aleksandrovich points out and adds that this will not be an end to the recession. ‘There is no optimism in the medium term because of the fragility of business and the financial system’ – concluded Mr. Gan.

 

 

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