An upcoming injection of dollars in free circulation (QE3) could begin in autumn-winter, analysts say, according to KW.
The shortage of the U.S. currency is being driven by growing demand: central banks are packing their reserves with greenbacks without leaving any for private investors. Only a year ago, the share of the U.S. currency in their reserves reached a historical minimum of 60.5%. Due to this, the prospects of the dollar as a reserve currency raised certain doubts among investors. However, by December the share of dollars grew to 62.1%. This indicator kept growing in 2012.
“Any hints for quantitative easing increase speculative moods on markets and foster an increase in the euro/dollar rate. The debt crisis, the increase in the profit margins of bonds of European countries and the absence of unity among politicians in Europe do not give investors optimism. However, the U.S. economy also is showing few signs of revival. That is why any event in favor of settlement of debt problems of euro zone countries in addition to QE3 will lead to a rise in the exchange rate of the European currency in the short and medium term to the level of 1.32-1.35,” predicts Olena Dudnyk, chief trader at the of First International Financial Agency.
In 2013, the U.S. dollar can drop in value even more. Analysts at Morgan Stanley believe that due to the debt problems of the U.S. the demand for the U.S. currency will sharply fall. It is projected that in 2012, the budget deficit in the U.S. will come to 8.1%, while in the euro zone it will not exceed 3.5%. It is possible that compensating the cash gap of the U.S. treasury at the expense of the inflow of capital will not work. The low rates of refinancing scare investors and force them to seek more profitable assets for investments. In that case, the status of the U.S. dollar as a reserve currency could be shaken again. “The priority of central banks could again shift towards the euro taking into account the forecast of the growth of the dollar and the Swiss franc after QE3,” says Boriychuk.
