On Wednesday, the markets got what they had so longed for all the time - as it seems to them, a hint that the Fed will reduce the number of interest rate increases next year, and their overall level will be less than expected.
In his speech, the head of the Federal Reserve, J. Powell, mainly focused on price stability and the state of the country's financial sector, but also touched on the prospects for raising interest rates, saying that they are "only slightly below" the neutral level. These words provoked a rally in the US stock market and put pressure on the yield of Treasury government bonds and the dollar rate.
Moreover, the benchmark yield of 10-year-old treasuries declined following Wednesday and continues to drop on Thursday, being so far above the 3.00% mark. Major stock indexes added significantly more than two percent. The US dollar fell against a basket of major currencies and at the time of this writing is at the level of 96.57 points.
As for the forecast of the development of the situation, we believe that there is a reality of continuing growth of inflationary pressure primarily against the background of continuing positive dynamics in the labor market, as well as the likely failure of negotiations between Washington and Beijing on trade duties at the G20 summit which will begin tomorrow. If no agreement is reached, the introduction of new increased duties will hit corporate profits, primarily highly technological ones, and will generally lead to an increase in the cost of final goods in the United States. This, in the future will be a new round of industrial inflation which will pull and consumer. This scenario will simply force the American regulator to continue the process of raising interest rates and perhaps, even raise their overall level.
In our opinion, yesterday's optimism will quickly dissolve against the background of unsuccessful negotiations, which will cause a new wave of sales in stock markets, and an increase in the yield of treasuries and and a local appreciation of the dollar.
Forecast of the day:
EURUSD is trading below 1.1280. Preservation of local demand for risk may lead to its growth to 1.1460 after crossing the level of 1.1400.
The USDJPY pair is trading below 113.40 amid a global weakening of the dollar after a comment by J. Powell. Saving such a tendency and fixing the pair below the level of 113.40 may decline to 112.75.
