Today's role of the US Dollar in the contemporary global economy and finances can hardly be overestimated despite the fact the America currency isn't backed by anything that has real value (like gold) and is based only on the US government's full faith and credit. Moreover, the USA is currently seeing multiple challenges, including the debt ceiling issue that has to be resolved until February 7th if the USA wants to avoid a technical default.
In this aspect, more and more traders and investors (as well as ordinary people) around the globe are getting increasingly interested in the near-term prospects of the world's major reserve currency. So, what are the most likely scenarios of the US Dollar in 2014? Let's ask Masterforex-V Academy, the respected trading expert in Forex trading!
Geopolitics and Dollar. USA Loses Ground
The USA has lost the hegemony in geopolitics. This became obvious after the USA lost its control of the situation in Syria. The USA was going to start a military campaign in Syria if the local authorities had refused obey. Still, the USA failed to gain the required support in the UN Security Council.
Then there was a devastating blow to the USA's status as a global military superpower since there was a peaceful resolution according to the scenario offered by Russia. Even despite the fact that President Obama said he was glad at the peaceful resolution of the Syrian issue, this was a geopolitical defeat for the USA.
Doomsday Predictions for the USA: Myths and Likely Scenarios
You are probably aware of the fact that many financial experts, economists and politicians from around the globe have been predicting the collapse of the US Dollar and the country's entire economy and financial system for years.
First of all, it should be noted that the US economy has been facing multiple challenges since the 1990s. Globalization lead to outsourcing and transfering industrial capacities to emerging economies with cheaper labor power. Various price bubbles in major economic sectors, higher unemployment amid growing debts couldn't but undermine the US Dollar.
The US government seemed to see only 2 ways out: military stimulation and massive money emissions. Still, the consequences of these superficial actions were felt mainly by other countries with national currencies pegged to the US Dollar.
The 2008-2009 global crisis was another wakeup call indicating the weakness of the US economy and financial system. At that time, the US Dollar strengthened against all other currencies affected by the global crisis. Still, the US currency was seriously hit in 2011. It is not accidental that Russia and China signed an agreement to use their national currencies in bilateral trade, thereby avoiding the US Dollar. This definitely undermined the US Dollar status in the world.
At the same time, we should keep in mind that the prolonged crisis in the eurozone keeps affecting American businesses located in Europe, thereby aggravating the situation for the US Dollar.
What are the most important factors for the US Dollar to pay attention to? Masterforex-V Academy offers the following events:
Wednesday's FOMC meeting will indicate whether the Fed is determined to continue tapering QE3. If this is the case, EURUSD may get an upward stimulus.
Friday's unemployment and inflation reports. Many financial institution (including the IMF) are currently worried about possible deflation processes in the eurozone. If the figures are positive and indicate growth, this will support the Euro, simultaneously pressing the US Dollar in the near future.
The US debt ceiling issue stays unresolved. The US authorities will have to find a solution until February 7th in order to avoid a technical default. The existing risk exerts extra pressure on the American currency.
The bottom line is that the EURUSD rate is likely to stay relatively stale in the short run with a chance of a minor rally. The bullish potential is restrained by 1.39.
Technically, we can see the bears trying to take over the initiative. However, if there is no further decline within a couple of days, the price may rally once supported by bullish drivers.
Experts on Dollar Destiny
Is it enough to predict a collapse of the US Dollar? Well, most analysts say another (much stronger) crisis may hit the globe in 2014. This time they expect the Asian dragons to be affected most of all. They say the GDP, production and consumption, in Japan, India, Taiwan, Singapore and (most importantly) China keep declining. Still, China is not going to be affected much even if the rest of the world suffers form its economic slowdown since China’s gold-and-currency reserves do impress. Even amid slower production, China’s consumption and GDP remain strong.
At the same time, the USA can only support its economy by turning one its money printing press again amid worsening economic figures. At the same time, China can switch to austerity at any moment if necessary.
Now let’s suppose China wants to change the US Dollar for its Renminbi as the world’s major reserve currency. Would there be countries to support this idea? Yes, there definitely would! The list of such countries keeps growing every year since the world is sick and tired of the Fed’s experiments, and the roller-coaster seen in the US Congress.
The thing is that it is difficult to make long-term projections for the US Dollar since it stoped being predictable a long time ago. The US Dollar is mainly backed by the OPEC since the US Dollar is the only currency you can buy or sell crude oil for. Therefore, it is likely that 2015 will change the state of affairs in the global financial system and the hierarchy of major currencies.