The US dollar has definitely strengthened in the last 24 hours. All because of the decision of the US Federal Reserve and the press conference of Fed chairman Jerome Powell, which cooled the high expectations of the market, thus leading to dollar strength and sell-off on Wall Street.
Expectations before yesterday's decision of the Federal Open Market Committee were very large. Investors hoped for a medium-term and long-term Fed's dovishness. After all, the interest rate market assumed that by the end of 2020, we may see four cuts of 25 basis points. Meanwhile, the Fed, as expected by the market, lowered yesterday's range for the federal funds rate from 2.25-2.50 to 2.00-2.25 percent. It was the first cut in more than a decade when the Fed cut interest rates during the financial crisis.
The statement made it clear that the Fed currently has no grounds to significantly cut interest rates. The situation on the labor market is very good, economic growth also. Only inflation remains subdued, and the main reason for cutting is the risks associated with the trade war. It is not known today how long it will last and how it will be settled. Therefore, according to Powell, the Federal Reserve has no grounds to consider, after the lowering of interest rates on Wednesday, that this move as the beginning of a new easing cycle.
Such a statement shook the American stock market. Investors on Wall Street started selling shares quickly, and the main indexes dived. Less dovish Fed's bias than expected also translated into a significant strengthening of the US currency. The EUR/USD pair dropped below 1.1050, which was the lowest since May 2017. It also skyrocketed the USD/PLN rate. For one dollar, you currently pay 3.88 zlotys, which is the highest price since spring 2017.
Disappointment with the decision of the Fed expressed the president of the United States. Donald Trump said that Federal Reserve Chairman Jerome Powell "let us down" by offering a rate cut that is not aggressive enough to wage trade and currency wars by his administration.
Today, another decision of an important central bank awaits us - the Bank of England. The Fed must assume in its decisions the unpredictability of the further process of a trade war. In turn, the Bank of England has to take into account different brexit scenarios, which is very difficult and complicated. Today the Governor of the Bank of England, Mark Carney, will face the new realities of brexit and the growing likelihood of leaving the Union without agreement during the publication of the decision on interest rates. At 13:30, a press conference will be held by the head of the Bank of England.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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