After the announcement of the results of the December Fed meeting, the dollar bulls tried to show good spirits, since the most dovish scenarios were not realized. The Fed has justified the forecasts of most analysts and took a double position. On the one hand, the regulator announced a further tightening of monetary policy, and on the other hand, reduced the estimated number of increases next year to two.
The first reaction of the traders was positive. On the eve of the key meeting, the market was so "screwed up" by all sorts of rumors that the expected outcome was a real gift to the dollar bulls. The dollar index went up, but after a few hours the growth stalled from the mark of 96.52, the indicator began to roll back, and in those minutes, it is at around 95.73. The first emotions subsided, and sober calculation took their place. The Fed almost managed to maintain a balance in their actions and rhetoric, but the final advantage was still not in favor of the dollar.
In addition to the publication of the above-mentioned point forecast, which reflects the double rate increase in 2019 (and not triple, as it was in September), the Fed has disappointed with other forecasts. First, the regulator lowered the average estimate of the long-term neutral rate value. Now the optimal level, which does not hold back economic growth, but does not overheat it, is at around 2.8% (instead of three percent). Secondly, the Fed lowered expectations for US economic growth. For the current year to 3% (from 3.1%), and for the next year, to 2.3% (from 2.5%). Also, inflationary expectations decreased slightly. In 2018, 1.9% instead of 2% and in 2019, 2% instead of 2.1%.
In addition, the regulator has changed some of the wording in the accompanying statement. Thus, the phrase "further gradual increase in rates" was changed to "some further gradual increase in rates". This is a very minor adjustment, but in combination with the other factors, it definitely confirms the softening of the general attitude of the members of the regulator.
Jerome Powell at the final press conference also voiced quite "dovish" theses. He said that the interest rate reached "the lower limit of the range, which corresponds to a neutral level of rates." In the future, the Fed will focus primarily on incoming data, which should correspond to the forecasts of the regulator. At the same time, according to Powell, in 2019, the dynamics of the main indicators of the economy will be "not so favorable" to the forecasts of the regulator, as it was this year. He also noted that "unpleasant surprises" began to arrive at the end of the current year. In particular, we are talking about inflation, which turned out to be weaker than previously expected. According to the Fed, "core inflation no longer responds to changes in economic growth."
Powell also confirmed that two rounds of rate hikes are expected next year. In his opinion, the slowdown in monetary tightening should support the economy, ensuring the achievement of target levels.
In other words, the Fed is indeed slowing down, but at the same time trying to maintain a "hawkish" attitude. In particular, Powell stressed that there is no need for the regulator to pursue accommodative policies, "since it can be neutral." He also said that Fed decisions are not restrictive. In addition, Powell noted that inflation is "just below" the target level, so the regulator may not be in a hurry with subsequent decisions.
In my opinion, the main conclusion of the December meeting is that the American regulator announced the completion of the rate hike cycle. Naturally, all this will take place very smoothly and gradually. Over the next year, there will be two rounds of promotion, and in 2020, perhaps another. But, nevertheless, the Fed has already outlined the boundaries of their actions.
In the context of the EUR / USD pair, this fact plays an insignificant role so far. The European Central Bank does not even discuss the question of a rate increase (at least in practical terms). Therefore, in this context, the advantage remains for the US currency. But if the ECB at the end of next year still starts to tighten monetary policy, the euro will receive a powerful and, most importantly, long-term trump card.
However, this is still far away. Now, we are witnessing a pulse correctional growth of EUR / USD, which is caused not only by the "dovish" Fed meeting but also by the "truce" between Italy and the EU. Yesterday, it became known that the European Commission would not apply the disciplinary procedure for Rome while approving the long-suffering draft Italian budget. The immediate goal of corrective growth is the mark of 1.1515 (the upper limit of the Kumo cloud on the daily chart). If the pair consolidates above this target, then the Ichimoku indicator will generate a bullish signal "Parade of lines", which will open the way to further price growth up to the 17th figure.
