The US dollar continues to hold its position as a whole, despite the fact that the markets are almost completely confident that the Fed can only solve from the two increases in interest rates promised at the end of last year to one at best.
After the January meeting of the regulator, as well as, the press conference of its head, J. Powell, a wave of optimism spilled on financial markets. Today, investors begin to have doubts about whether the Fed would actually follow its promises to really stop monetary tightening of credit policy. Yes, the process of raising interest rates may indeed not only slow down in the long term but also stop altogether if the full-scale slowdown begins in the US in the background of what is currently happening with the Chinese.
Markets forget that until the Central Bank decided to stop reducing its balance sheet and its largest reduction of $ 72 billion is planned for this spring as expected, apart from a decrease in February by more than thirty, then the actual tightening of monetary policy will continue. Recall that earlier the process of easing monetary policy after the large-scale financial crisis of 2008–09 was based not only on lowering interest rates to almost zero, but also on pumping the financial sector with huge amounts of liquidity, which led to a strong increase in demand in high-risk asset markets. First of all is the stocks and ultimately to the recovery and increase of economic growth.
But now, even if the Fed stops raising borrowing costs, it does not stop the process of reducing the balance. This will actually continue the tightening of monetary policy and cause "damage" to the markets and the demand for risk. So far, the regulator has not reported anything on this account, which forces investors to balance on a wave of uncertainty. Now, if a decision is made to stop reducing the balance then it will be possible to talk about the actual suspension of the process of tightening monetary policy.
Assessing this state of affairs, we note that this may keep the dollar from falling on world markets in the future even support it against the background of weakening investor attitudes towards purchases of risky assets.
Forecast of the day:
The EUR/USD pair is below the level of 1.1450 against the background of emerging negative data on the economy of Germany and the eurozone. An additional negative is the situation of uncertainty around Brexit. From a technical point of view, if the pair does not grow above the level of 1.1450, it can continue to fall to 1.1375.
The GBP/USD pair is trading above the level of 1.3015. Uncertainty around Brexit pushes the pair down and its decline below the level of 1.3015 may lead to a further fall to 1.2945.
