The Federal Reserve sowed optimism in the markets, thereby curbing the overly positive sentiment that has been observed in recent weeks. One cannot say for sure what exactly triggered the fall of US stock indicators: the pessimistic forecasts of Fed officials or the need for a technical correction is overdue.
Indices recently looked overbought, and the downward trend was noticeable two days ago. Meanwhile, it is too early to think about a deeper and longer-term decline in Wall Street, first you need to wait and see how the current fall will end and what investors will eventually grasp at.
On the whole, world markets were dissatisfied with the results of the Fed meeting, despite the dovish notes and promises to continue expanding the balance at the same pace.
As for the dollar, its upward rebound is more associated with a decrease in risk appetite than with the results of the Fed meeting. The US central bank, apparently, does not want to see a dollar that is more expensive. Financial authorities have changed inflation estimates. This year the indicator is expected at 0.8%, and next year - at 1.6%. The discount rate may remain at the current level of 0.1% in the next two years. The negative for the dollar is that during this period a negative real interest rate will be observed.
USDX
The Federal Reserve will continue to print money and buy assets in the same volumes to ensure the smooth operation of the credit market. This will lead to a serious increase in the money supply, which is negative for the dollar. After the Fed meeting on Wednesday, analysts began to adjust their estimates for the dollar for the worse. Some experts speak out in favor of a further fall in the US dollar in the second half of the year.
"We are lowering our forecast for the US dollar," wrote Fidelity International. "The FOMC reinforced our view of a weaker US currency. US financial officials virtually guaranteed a weak dollar. "
The potential for growth, according to company representatives, has the Japanese yen, both in terms of assessed value and due to its protective functions.
USD/JPY
Risk appetite has certainly suffered in recent days, but there are still few arguments for the bearish market to return in risky assets. In terms of stimulus, the situation has not worsened, on the contrary, it has become even better, since the Fed provided a signal of its readiness to give more if the situation in the economy requires it. The volume of securities purchases under QE should remain at the current level, and the expected duration of zero rates has increased.
If we talk about factors without mentioning the Fed, then at the moment the greenback is supported by the fear of the second wave of the pandemic due to social protests. In some cities and states (more than 20), the average number of new cases of coronavirus has increased over the past seven days. Texas, which was one of the first to ease quarantine measures, records a record number of hospital admissions for three consecutive days. A similar leap is observed in nine counties of the state of California.
