The dollar is losing ground after Fed Chairman Jerome Powell said that interest rates are already "slightly below neutral," investors took these words as a signal that the rate hike cycle is nearing its end.
Powell's remarks took the currency markets by surprise, as he noted that rates at the level of 2-2.25 percent are now "slightly below" the neutral range, which in September was 2.5-3.5 percent. Recall that in October, he considered the rates "far from neutral." The official's speech led to a weakening of the dollar in all directions, especially compared to more risky currencies, such as the Australian and New Zealand dollars. Some emerging market currencies, such as the South African rand and the Turkish lira, also showed growth.
Now, the main question is how true the expectations of growth rates will be. Now, investors predict a rate hike in December and just one more increase in 2019. For completeness, I advise you to wait for the publication of the minutes of the meeting of the Central Bank of the United States from November 7-8.
It is believed that a pause in the rate increase is necessary. Economic data has weakened, stocks are shrinking, oil and gas prices are falling, and not stimulating inflation. As a result, successive rate increases can be interrupted. In general, Powell noted the obvious things that the market is already beginning to feel. Traders need to be careful about creating aggressive short positions, given the upcoming G20 summit on Friday and Saturday, where US President Donald Trump and Chinese President Xi Jinping are planning to discuss controversial issues. If negotiations do not lead to a deal, the dollar may again catch the wave against the backdrop of rising demand for safe assets.
