World markets continue to throw in the cold, then in the heat against the backdrop of the uncertainty of the future actions of the Fed in the matter of monetary policy.
In recent weeks, in the wake of positive data from the labor market, as well as a slight increase in US inflationary pressures in the markets, investors began to doubt that after lowering the key interest rate by 0.25% following the July meeting, the regulator will continue to reduce it without stopping, It is called, attained. But yesterday's largely unexpected statement by the President of the Federal Reserve Bank of New York, J. Williams, again stirred up financial markets and allowed its participants to once again hope that the Central Bank will ignore the latest positive signals and may begin a cycle of lower interest rates for the first time in 10 years.
In recent weeks, investors have started to doubt that after a 0.25% decline in the key interest rate as a result of the July meeting in a wave of positive labor-market data, as well as a slight rise in US inflation pressure in markets. The regulator will continue to reduce it without stopping what is called the"what's at stake". However, the statement by the New York Fed President, John Williams has once again expanded the financial markets, which allows participants to hope again that the CBO will ignore the latest positive signals and could begin the first-ever interest-rate-reduction cycle in 10 years.
On this wave, the US dollar was under pressure and even began to decline in relation to the single European currency, which in recent months turned into a steady-state as an outsider amid signals of a recession in the eurozone as a whole and in Germany in particular. The news led to a sharp decline in the yield of American treasuries. Therefore, the benchmark yield of 10-year-old treasuries fell, approaching the key psychological level of 2.0% and the major US stock indices switched from negative to positive territory.
So what is so unusual about the representative of the Fed? Speaking at the meeting of the Central Bank Research Association, he said that the current level of interest rates is not so high that the regulator takes a long period of time. He made it clear that it is necessary to act in the presence of the first signs of problems in the economy. Moreover, in his opinion, lowering the yield of government bonds of the US Treasury will reduce the burden on the Fed and more favorable financial conditions will help disperse inflation.
Markets responded sharply with rising demand for neither risky assets and dollar sales, finding that on July 31 (the day following a meeting of the Central Bank) it could cut off rates by 0.50% instead of the expected decrease by 0.25%. The markets reacted so sharply because the New York Fed is considered the most influential Reserve Bank in the overall structure of the Fed. In addition, investors simply could not respond to his words that "it is better to take preventive measures than to wait until the catastrophe begins."
Evaluating the abrupt change in market sentiment, we believe that today the local weakening of the dollar will continue amid rising demand for risky assets.
Forecast of the day:
The AUD/USD pair remains in a short-term uptrend. Before continuing growth, it can be adjusted down to 0.7040 and we expect the pair to continue rising to 0.7140.
The NZD/USD pair can also be adjusted to the level of 0.6745 before continuing to climb to 0.6800.
