Despite the regulator's decision to lower interest rates and unexpected actions to stop lowering their balance from today (two months ahead of schedule), markets were disappointed. Against this background, the main US stock indexes fell by more than 1.0% and the dollar went up sharply. The main reason for this is the words of the head of the Fed J. Powell, who in his speech at the press conference reported that "this is not the beginning of a long cycle of rate cuts." He also noted that this solution is not a one-time or similar solution. He added that markets are wrong if they consider this as the beginning of a long cycle of lower interest rates. And yet, what is very important is that the Open Market Committee (FOMC) does not yet see real economic weakness.
In fact, the leader of the Fed said in person that the markets should not rely on the resumption of the quantitative easing program. This means that if the bank takes mitigating measures, this we should expect only possible smooth and non-regular lowering of interest rates in the current situation, and nothing else.
Of course, the position of the Federal Reserve cardinally changes the view of investors, not only on the stock and commodity markets, but also on the currency market. The American dollar received considerable support after it became clear that the bank's view of monetary policy. After strong growth on Wednesday, it will continue to grow on Thursday in the Asian trading session and its increase will continue in trading in Europe and America. This is because investors began to adjust their views on the prospects for monetary policy in the States after they were previously laid on the continuation of the weakening of the dollar.
Given the reality of the current market picture, we believe that the dollar will receive support against all currencies by the end of this week. Strong pressure will remain in the eurocurrency and the currencies of countries with developing economies that previously received support on the hopes that lowering US rates would turn into a cycle of decline.
Forecast of the day:
The EUR/USD is trading at 1.1040. It can be adjusted slightly upward to 1.1065 but we consider it possible to sell it either on the upward rebound or on breaking through the 1.1040 mark with its probable fall to 1.0950, which will only increase if tomorrow's employment data in the States are positive.
The GBP/USD pair is above 1.2115. The pair can also correct upward to 1.2210 but its decline will continue amid probably strong data on the number of new jobs in the States. We consider it possible to sell it from 1.2210 or after a decline below the level of 1.2115 with a local target of 1.1975.
