So I want to exclaim - what was it?!
The dollar stood still for a couple of days and then rushed into the unknown distance. Yes, even with such speed that no one could come to its senses. The Federal Reserve System gave a magic kick in the ass already at the stage of announcing the composition of the team, so even before Jerome Powell's press conference it became known that one of the members of the Federal Commission on Open Market Operations had voted to lower the refinancing rate. Then the team captain gave the dollar even greater acceleration, saying that a considerable number of its partners, part-time employees and subordinates, do not exclude the possibility of reducing the refinancing rate to as much as 2.0%. True, so far they do not intend to take such actions, but the situation is developing in such a way that such an opportunity should not be ruled out. So all Thursday, the dollar flew like a soccer ball sent to its own goal. As soon as it lost all the kinetic energy, Lael Brainard and Loretta Mester played the role of defenders, they almost cut the ball into their own goal. They managed to say such that the number of gray-haired people in the world clearly increased. Although they voted for the preservation of the parameters of the monetary policy pursued, but only for the reason that right now they do not see the need to lower the refinancing rate, they do not exclude such a possibility for this year. Take note, not a word about raising the refinancing rate, which appears in the previously announced plans of the Federal Reserve System. So, laughter is laughter, but in fact we are on the verge of a cardinal turn in the policy of the Federal Reserve System, and instead of gradually tightening it on the horizon, its softening looms with might and main. It is no wonder that investors sold out portraits of dead American presidents with incredible frenzy. The frequency with which representatives of the Federal Reserve make such statements is more like an attempt to please Donald Trump, who is so outraged by the dollar that he again threatened Jerome Powell with early resignation.
Against the background of such large-scale events, no one paid attention to the meeting of the Board of the Bank of England, which continues to remain in an ostrich's pose, hiding its head in the sand. Although even if there were no harsh statements by representatives of the Federal Reserve System, no one would have paid attention to the inaction of the Bank of England. The Office of Mark Carney has long stated that there will be no changes in the regulator's policy until it becomes clear how Brexit will end. But events are developing in such a way that everything goes in time for the saddest end of this whole epic. Boris Johnson, who is in favor of a speedy divorce with the European Union, and even without an agreement, because the existing one does not fully suit him, since it implies certain payments from the United Kingdom, confidently won the qualifying race for the post of head of the Conservative Party. Now almost one hundred and sixty thousand party members through the mail must choose who will become their leader, Boris Johnson or Jeremy Hunt. Considering how far the former foreign minister has bypassed the current one, there is almost no doubt that Boris Johnson will become the new head of the Conservative Party, and considering its majority in the House of Commons, also the new prime minister. This means that Brexit will follow the worst-case scenario, without any deal and with unpredictable consequences for the economy of both the UK and the European Union. It is clear that the economy of continental Europe will experience a number of difficulties, but it is still difficult to say how it will all end for the United Kingdom. Tarot cards give an ambiguous answer - whether the Apocalypse or Armageddon.
Naturally, enthusiastically eating popcorn while watching the Brexit series and the Federal Reserve System is somehow not conducive to the study of boring and dreary macroeconomic statistics. But there was something to see. The number of building permits increased by 0.3%, but the number of new construction projects decreased by 0.9%. Although home sales in the secondary market increased by 2.5%. Also, the total number of applications for unemployment benefits fell by 43 thousand, while waiting for a decline of only 13 thousand. But at the same time, preliminary data on business activity indices showed a decrease in the production index from 50.5 to 50.1, and in the service sector from 50.9 to 50.6. As a result, the composite index of business activity fell from 50.9 to 50.7. But this is as far as the United States is concerned, and it can be seen that, in general, the data are not so positive and rather neutral. But there were enough interesting results in Europe. There is only one, the final data on inflation, which due to the revision of the previous values showed a decrease from 1.7% to 1.2%. Given that until recently, April inflation was estimated at 1.2% and it was expected that it will remain unchanged in May, the picture looked relatively good. Now everyone has seen that inflation is seriously slowing down, which means that the European Central Bank will be much more likely to look for options for easing monetary policy. True, this is the only thing that could upset investors, since the rest of the macroeconomic data from Europe were clearly positive. In particular, the growth rate of the construction industry slowed from 5.8% not to 1.9%, but to 3.9%. But what is much more interesting is that the preliminary data on business activity indices turned out to be significantly better than the American ones, since all the indicators showed an increase. The manufacturing index of business activity rose from 47.7 to 47.8, and in the service sector from 52.9 to 53.4, which gave a composite index increase from 51.8 to 52.1. But given the extremely weak data on inflation, there are clearly no reasons for the growth of the single European currency. But the British statistics more likely indicates that the pound had to go down with confidence, because not only did inflation fall from 2.1% to 2.0%, so also the growth rate of retail sales slowed down from 5.1% to 2 3%. But such an explosive mixture for all sorts of investors is the very incense, from which devils scatter through all the cracks.
After Fed representatives sent the dollar into unthinkable distances, the market, of course, needs to take a breath and collect its thoughts. But this week, Jerome Powell is again in favor, and there is every reason to believe that he will continue to bury the portraits of the dead presidents of the United States with further hints of a speedy reduction in the refinancing rate. There will be at least one person who will rejoice over this, Donald Trump. However, in the US they expect a slight increase in sales of new homes, as well as orders for durable goods. Moreover, the final GDP data for the first quarter should confirm the fact of accelerating economic growth. Personal incomes with personal expenses can show an increase of 0.3% and 0.4%, respectively, which usually pleases investors. In Europe, preliminary inflation data will be published, which are expected to show its stability. As for the UK, there is still a slight lull in terms of Brexit, since the results of the election of the head of the Conservative Party will not be known anytime soon. But the final GDP data for the first quarter will be published, which will almost certainly confirm the fact of accelerating economic growth. Nevertheless, this is already taken into account by market participants, and they will increasingly reflect on the consequences for the British economy, just unregulated Brexit.
In other words, if Jerome Powell does not add fuel to the fire again, then, due to macroeconomic statistics and the oversoldness of the dollar, the single European currency may drop to 1.1300 - 1.1325. Well, if the head of the Fed continues to frighten market participants, then we are waiting for a rise above 1.1400.
In regards to the pound, the options are exactly the same, and either we will witness its decline to 1.2625 or see a continued growth to 1.2800 and above.
