Today, the attention of world markets is drawn to the final decision of the Fed on monetary policy, as well as its forecasts on the expected state of the American economy in the new year and interest rate forecasts.
In the past two months, financial markets have increased expectations that, against the background of clear signals of slowing global economic growth, the trade war between the USA and China, as well as the natural weakening of the effect of tax reform adopted by D. Trump after winning the presidential election, will begin to slow down and America's economy, which may force the Fed to pause in raising interest rates.
Against the background of these events and expectations, the American stock market began to be adjusted, which, in our opinion, could turn into a full-scale decline, thus there are real prospects for its transition from the bull market, which was observed from the end of zero, to bearish. The dollar also moved into a phase of consolidation against major currencies, as the resulting uncertainty factor in future prospects holds back its growth. It should also be recognized that the general decline in demand for risky assets, the lack of desire of world central banks to actively raise interest rates help to increase interest in the US currency as an asset safe haven along with the Japanese yen and the Swiss franc. This factor does not allow him to go into a phase of full-scale fall.
Let us return to the possible reaction of the currency market, or rather the dollar, to the Fed's decision on the rates and its estimates of the state of the country's economy and plans for monetary policy. We believe that the likelihood of raising the key interest rate remains high, and it will be increased to 2.50% from 2.25%. This action is unlikely to have a strong impact on the markets, since in general, they have long been taken into account. If the rate is not raised, it will put a strong pressure on the dollar, as well as lowering the forecast for economic growth by the regulator for the next three years. Also a negative for him will be a reduction in the likely number of increases in interest rates from three to two planned in September. This will be a clear signal of a pause in raising borrowing costs at the beginning of the new year.
But if the Fed raises the stakes and at the same time shows confidence that the economy will stand under the pressure of impending adversity, and the previously planned number of rate increases remain, this will be a strong signal to buy the dollar.
Forecast of the day:
The EUR / USD currency pair is trading in the range of 1.1270-1.1460 in anticipation of the outcome of the Fed meeting. If it turns out to be negative for the dollar, the pair may rise to 1.1460, but if the regulator maintains perseverance in the desire to actively raise rates further, this will put pressure on the pair and it may fall to 1.1270.
The USD / JPY currency pair is in the range of 112.30-113.90. The reaction will be similar to the Fed decision, as in the EUR / USD pair. On the positive for the dollar, the pair will rush to 113.90, on the negative after overcoming the mark of 112.30, it may fall to 111.65.
