On Wednesday, the entire investors' attention was focused on the result of the two-day meeting of the US Central Bank, as they waited to confirm their desire to further raise interest rates.
Market participants were interested in the fact of confirming the desire to continue the rate hike which will actually happen against the background of rather positive economic data and also to the possible additional number of hikes from the three to four for this year. But further information about this issue was not followed. The published report from the Federal Reserve clearly indicates to continue raising interest rates gradually, despite the approach of one of the most important inflationary indicators - the basic index of personal consumption (RFE) to the target level of 2.0%. Recall that in April, this indicator showed growth of 1.9% annually against 1.6% in 2017.
However, there have been some changes in the speech of the regulator. He said that he stops "closely monitor inflationary dynamics", which indicates that, the Central Bank is likely to increase its median forecast for rates in the future, and therefore there may be more quantitative increases. This will be a positive factor for the US dollar in the long term.
The foreign exchange market following the Federal Reserve meeting reacted to the dollar weakening against the background of a similar decline in government bond yields of the US Treasury. It is not necessary to say that we are witnessing a change in sentiment among market players. Generally, we can say that the regulator has retained the desire to continue to understand the borrowing cost which allows a number of speculative market players to buy risky assets for a while and first of all the shares of American companies. As for the dynamics of the US dollar, it will continue to be influenced by the process of raising rates in the United States along with geopolitical problems and the dynamics of government bond yields.
Forecast of the day:
The EUR/USD currency pair remains under pressure while anticipating the publication of consumer inflation data in the euro area. It is adversely affected by the decline in expectations that the ECB will change the course of monetary policy amid the slowdown in economic growth and inflation. At the same time, the dollar gains support because of the Fed's position on the rates and growth of the US economy. Today, the pair may adjust to 1.2020, but on a wave of negative news from the euro area will continue to fall to 1.1900.
The GBP/USD currency pair, like the euro, remains a hostage in the inflation reduction and economic growth, which puts an end to the possible resumption of the rate hike cycle by the Bank of England. The pair can also rise to 1.3660, but if this mark prevails, there is a probability of the pair to turn down to 1.3500.
* The presented market analysis is informative and does not constitute a guide to the transaction.
