Based on Tuesday trading, the US dollar fell against all major currencies with the exception of the Japanese yen, which grew slightly against it. The reason for this dynamic is still the two topics on the expectation of a positive outcome of negotiations between the Americans and the Chinese, and the growing investor conviction that the Fed can not only stop raising interest rates. However, they also reduce its balance which was inflated during the three quantitative easing (QE) programs but already reduced from an estimated volume of 4.5 trillion dollars to 4.0 trillion dollars in the fall of 2017.
It seems that the market is beginning to believe in another important thing which is the deployment of new incentive programs but not only in China, it includes the US and the eurozone. So far, Americans are still full of optimism about the prospects for their economy, hoping for the conclusion of a new trade agreement that is beneficial for them which, in their opinion, will support the national economy. According to the president of the Federal Reserve Bank of Cleveland, Loretta Mester, she said on Tuesday that she expects the economy to continue to grow at a rate of 2.00% - 2.50%, which is slightly lower than previously forecast but still acceptable. She also made it clear that interest rates are likely to be raised from current levels. In general, the content of her statement was "soft" in content, which also contributed to the weakening of the US currency.
Today, market's attention will focus on the publication of the minutes of the last Fed meeting as they wait for a signal whether the Fed will stop reducing its balance or not. At the moment, it is the cornerstone of stabilizing the current levels of US stock indices and the possibility of their further growth, and of course, this is the main factor in determining the dynamics of the dollar.
If the Fed decides to stop reducing the balance on any plausible pretexts, it will keep investors interested in buying risky assets and will undoubtedly put pressure on the US currency. However, if a distinct signal does not follow then this will lead to an increase in pressure on stock markets and an increase in the dollar rate.
In our opinion, while the American regulator hopes for the continuation of economic growth in the country at the moment, it will avoid a clear position in relation to his monetary policy, which may become the basis for maintaining high market volatility. The situation may become clear already against the background of the outcome of negotiations with the Chinese, on which, much will depend.
Forecast of the day:
The EUR/USD pair is trading below 1.1355 after rising in the wake of the global weakening of the dollar. If the pair fails to overcome this mark, it may turn down with the prospect of a decline to 1.1290, probably because of the indistinct position of the Fed regarding the prospects for ending the balance reduction.
The USD/CAD pair is above the level of 1.3185. If the weakening of the dollar stops and oil quotes will turn down against the background of the publication of data on oil and petroleum products in the US, the price may turn upward and rush to 1.3285.
