Dedollarization The information presented in this publication is provided solely for informational purposes and does not constitute investment advice, a sales offer, or a solicitation of purchase, and should in no way serve as a basis or be considered as an incentive to engage in any investment. The macro point Hold on tight. The Fed meets on Tuesday and Wednesday. It’s a high-risk meeting. Zero rate cut this year is no longer a far-fetched scenario given the impressive resilience of the American economy. This is linked to an abnormally high budget deficit in peacetime. In any case, it is difficult in this context to envision a lasting decline in the dollar. It’s the recurring theme in the foreign exchange market. For years, we’ve been hearing about dedollarization, but it has yet to materialize…at least at the level of international payments. According to the latest data from Swift, the dollar still represents an overwhelming share of transactions—48% in 2023, a ten-year record. Some countries are, however, more advanced than others in the dedollarization process. Russia, obviously due to the war in Ukraine. But there is also China. For several years, the country has sought to reduce its exposure to the greenback, leading it to turn to gold. According to customs data, China purchased 234 tons of gold in January 2024—a record. The central bank has been a net buyer of gold for seventeen months. And it’s certainly not about to stop. If we are objective, one cannot really speak of dedollarization at the international level. It would be more prudent to speak of an international multipolar monetary system with the dollar as the standard and the emergence of new currencies like the yuan.It is also hard to see how the dominance of the dollar could be contested in the short term. The American economy significantly outperforms the rest of the world due to an unmatched budget deficit in peacetime. This leads to an increase in the yield of dollar-denominated assets. Logically, savings will be recycled where returns are highest, therefore in the United States. And this will continue in the coming months. The rate differential has been the main driver of exchange rate developments in recent months. It will also be the case for the rest of the year. Everything suggests that the Federal Reserve (Fed) will not cut rates at best before September (some analysts even predict zero rate cuts this year!). Conversely, several members of the European Central Bank (ECB) have unambiguously confirmed the first rate cut in June. Some have even gone further by stating they are considering 100 basis points of rate cuts this year. That’s much more than what the consensus predicts. In any case, it is evident that the rate differential will widen across the Atlantic this year, which will favor the US dollar. Hard to see a real dedollarization of the world in these circumstances.Should one fear a return of the EUR/USD to parity? It’s the dark scenario mentioned in trading rooms. Personally, we don’t believe it. Even if the ECB reduces its rates more than expected, it is unlikely that the euro will collapse so much. The single currency benefits from some supportive elements that should prevent a return to parity—in particular, the improving conditions. The latest PMI activity indicators for services and manufacturing published last week confirm that the growth trough was reached in the first quarter. That’s precisely what we mentioned last week. In the short term, we rather anticipate that the EUR/USD pair will flirt with the 1.05 area.Even if it’s no longer headline news, the situation in the Middle East continues to fuel risk aversion and penalize some local currencies. The Israeli shekel continues to fall following the decision by rating agencies S&P and Moody’s to downgrade Israel’s sovereign rating to A+. It remains a very honorable rating. But one cannot deny that the economic situation is rapidly deteriorating. Everything indicates that the war situation will persist, and one cannot rule out a further escalation of tensions with Iran. For now, the Bank of Israel seems to refrain from intervening directly in the foreign exchange market to support the shekel. However, it remains an option on the table if the situation further deteriorates. We continue to monitor what is happening in the region as it may cause global volatility spikes. Caution. Technical point On the currency market, a strong dollar remains the norm. This is a real problem for Asian currencies to the point where some central banks are forced to act. Last week, Indonesia was forced to raise its rates to protect the rupiah. It is certainly not the last country to make such a decision. Expect rate hikes in Asia to support local currencies. On the euro side, the trend remains bearish against the dollar – unsurprisingly. However, there is relative stability against the British pound and the Canadian dollar (EUR/CAD has hovered around 1.46 for several sessions). A final reminder that the battle against inflation is not easily won. Inflation in Australia surprised to the upside with a 1% rise in March. It's an unwelcome surprise. The money market now no longer excludes the possibility of further rate hikes (unlikely but this highlights the problem some countries have with domestic inflation). Marginally, this could slightly support the Australian dollar against the euro. The supports and resistances displayed below indicate the lows and highs within which the rates should evolve during the week.Weekly SupportsWeekly ResistancesS2S1R1R2EUR/USD1.05251.06101.08121.0899EUR/GBP0.83550.84110.86090.8644EUR/CHF0.95340.96110.98550.9901EUR/CAD1.44541.45111.47341.4800EUR/JPY162.11163.01166.55167.22 Announcements to follow All attention is on this week's Fed meeting. The stakes are high. The outperformance of the American economy is impressive. Analysts are even now considering that the Fed might not cut rates this year. It's completely unexpected. It is unlikely that the central bank will give much guidance to the market on the short-term evolution of monetary policy. We will have to wait for the update of macroeconomic projections in June to know more, in our opinion. At a minimum, we should have confirmation that a rate cut is completely excluded in June – when it was the central scenario just a month ago. On the eurozone side, the release of the first inflation estimate for April should confirm that the disinflation process continues smoothly. A 25-basis point cut in June is a given. Below you will find the publications and events expected to have a major impact on currency movements.DayTimeCountryIndicatorWhat to expect?29/04/202414:00ALLConsumer Price Index (April)Previous at 0.4% month-on-month.30/04/202411:00EURConsumer Price Index (April)Previous at 2.4% year-on-year.01/05/202420:00USACentral bank meetingTwo rates unchanged at 5.50%.03/05/202414:30USAEmployment figures (April)Previous: 330k job creations and 3.8% unemployment rate.