The fact that the Fed will not raise interest rates during the meeting on September 19-20 is already anticipated by everyone. The market's attention is focused on the Fed's decision to start reducing the incentive measures.
The market's opinion is based on the fact that inflationary pressure in the United States remains low. So far, we do not expect further rate increases which is actually justified by the statements of Fed Chairman J. Yellen. Earlier, she reiterated that the priority for the decision to increase rates is the dynamics of the basic personal consumption index, together with the growth of income and expenditure of Americans, rather the labor market situation, which was the focus of attention a few years ago. But these indicators seems not too "strong" to force the Central Bank in continuing the cycle of raising interest rates.
There are no obstacles in order for the bank to begin the balance reduction, therefore, the important outcome of the meeting will most likely be the decision to begin this process. Moreover, the conditions of this event started coming to the leading edge. It is important to understand the inflated volumes to 4.5 trillion dollars balance to be reduced and to know further the rate. Now it is impossible to guess the Fed's decision, however, for instance, a noticeable monthly sales of bonds will undoubtedly put pressure on the overall alignment of forces in the US bond market. Hence, this will smoothly unfold and increase the profitability on the wave of sales. This will be a strong signal for investors and an important supporting factor for the US dollar in the long term. Stopping the Fed's reinvesting money from selling government bonds within this process will reduce the inflow of dollar liquidity and will make the dollar more expensive.
But take note that all of this will be stretched in time that will became one of the determining factors. But in the long run, the dollar has a chance to become strong again.
Forecast of the day:
The EURUSD pair will consolidate before the Fed meeting regarding monetary policy, and prior the German elections in the range of 1.1835-1.2070. We consider selling the pair be a priority within the range.
The GBPUSD is strongly overbought locally, which may lead to correction. The fall of the price below the level of 1.3560 opens the way for the pair to decline to 1.3400.
