The US dollar is expected to be weak against its major counterparts through second quarter this year, finding support only in the second half of the year, said a report on Wednesday.
We expect the USD to continue lower through Q2 before finding more meaningful support in H2 as the Federal Reserve ends its ‘QE2’ programme,” the Economy News reported, quoting a note from Standard Chartered.
The euro rose as high as $1.4521 on Wednesday, just one pip above the previous day's high to mark its strongest since January 2010.
The European Central Bank (ECB) Governing Council member Luc Coene on Wednesday said last week's rate hike should not be seen as an isolated decision.
The ECB on last Thursday raised the interest rates by 25 points to 1.25 percent, its first rate hike since July 2008.
“Interest rate spreads remain a dominant theme, depressing the USD and supporting European currencies. Despite short-term volatility around central bank meetings, we expect these broad trends to continue in Q2, the note said.
The central banks in Europe and Asia excluding Japan are working towards normalizing monetary policy, which will boost their respective currencies to strengthen against the dollar.
For Q2, this creates a persistently bearish backdrop for the USD. Within EM, CEE and Latin American currencies will continue to gain from EUR strength and higher commodities, respectively. We also foresee further gains in AXJ currencies, favouring the CNY, KRW, IDR and MYR, say Standard Chartered foreign exchange analysts.
Analysts said that the dollar is unlikely to rebound until the US Federal Reserve increases the key interest rates.