The Fed met the expectations of the markets by lowering the rate by a quarter percentage point, while also being disappointing as it said that this is just a "mid-cycle adjustment". Markets, on the other hand, counted on the beginning of a long series of easing policies. According to Donald Trump, who did not miss the opportunity to criticize Jerome Powell, the central bank made the mistake of not declaring "a long and aggressive cycle of rate cuts." By the way, these statements led market participants to the idea that in the coming months, Washington could initiate currency interventions. Despite the fact that the presidential administration has abandoned this idea, the majority of Bloomberg respondents do not exclude such a development of events.
Although as a result, the July rate cut may not be the last in 2019, the markets lost their optimism. Due to their shaky plans for September, the US currency rate, however, like the dollar index, began to grow. Meanwhile, key stock indexes showed a fall of more than 1%.
The recent meeting may well be a turning point for both the dollar and the markets as a whole. Recall that during the past two cycles, the federal funds rate decreased by more than 5 percentage points. Currently, the US central bank does not have such space for maneuver. This is due to the fact that now we have to carry out a decline from the starting point of 2.25% -2.50%. The situation is different from the previous two cycles, and Powell tried to convey this to market participants, but apparently did not succeed. If the nearest economic reports from the United States do not present unpleasant surprises, the dollar will develop growth.
Long-suffering pound
The most affected by the Fed's ambiguous rhetoric and dollar growth was the British pound. In tandem with the US currency, it collapsed to the marks on which it was during the Brexit referendum in 2016. Sterling has become even more vulnerable to political uncertainty in Britain.
In Asian trading, GBP/USD came close to 1.21. Later, the pair slightly reduced losses, but the picture as a whole remained negative. Failure below he 1.21 mark can trigger a new wave of stop orders and subject the English currency to an uncontrolled fall.
The next word was for the Bank of England, which, of course, did not make adjustments to the monetary policy. In addition, Mark Carney and his colleagues abandoned any hint of future policy easing. The only thing that could not be avoided was the decline in forecasts for the economy. The scandalous "divorce" process of Great Britain with the European Union does not bode well for the English economy, obviously.
Despite the massive drop in the pound, many analysts have a positive view on this currency, considering it too oversold.
Gloomy euro
The euro was seriously injured from the greenback's rally. The main pair reached its lowest level since May 2017 on Thursday, marking at 1.1025. The support line is broken, and this could trigger a further decline in the euro. In the short term, a smooth entry of quotations to the territory of the ninth figure is not excluded. If euro bears break through another important mark –1.09 - pressure on the EUR/USD pair will increase. In this case, the euro will be able to fall to even more sad value - 1.04.
Judging by recent events, the US dollar's domination is not under threat just yet. Jerome Powell's hawkish notes cast doubt on the widespread view that the US currency should depreciate in the near future.
The material has been provided by InstaForex Company - www.instaforex.com