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22.08.2019 12:53 AM
Nervous expectations (daily review of EUR/USD and GBP/USD on 08.21.2019)

Against the background of a completely empty macroeconomic calendar, the dollar has somewhat weakened in relation to absolutely all currencies.

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The single European currency and the pound's growth were noteworthy since it was synchronous and coincided in time with the statements of Boris Johnson and Donald Tusk regarding Brexit. Although the essence of these same statements does not add any optimism. The so-called Backstop, which implies maintaining a transparent border between Ireland and Northern Ireland, remains a stumbling block. Even in the case of an unregulated Brexit, that is, without any transaction between London and Brussels. This mechanism, in essence, turns Northern Ireland into a transit zone through which goods and services will move between the European Union and the United Kingdom, bypassing customs control. In other words, by and large, the situation in trade after Brexit will remain exactly the same as it is at this moment in time, despite London's desire to make some changes. But the worst thing is that it will lead to the flow of transit revenues from other parts of the United Kingdom to Northern Ireland, which will result in an increase in internal conflicts and disputes. So it is not surprising that British MPs consider this item a threat to the integrity of Great Britain. So, Boris Johnson demands to exclude this item and work out some new options for resolving the issue. In turn, Dornald Tusk once again expressed the common position of the European Union that no changes would be made to the proposed version of the agreement. And in theory, this should have greatly disappointed investors, but the reaction was completely different. The thing is that as the prime minister, this is Boris Johnson's first official contact with Europe regarding this issue. Most importantly, all parties expressed the hope that it would nevertheless be possible to reach a compromise that would suit both Europe and the United Kingdom. That is, despite all the warlike statements, negotiations are ongoing. Despite the fact that negotiations on the economic part of the agreement will begin only after Brexit, which is due to take place on October 31, the fact that negotiations have continued has somewhat inspired market participants.

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Although all this is more like an attempt by a drowning man to grab onto a straw. In addition, do not disregard the nervousness of market participants, in anticipation of today's release of the text of the minutes of the Federal Open Market Committee meeting. Especially in the light of yesterday's decision of the People's Bank of China to lower the refinancing rate from 4.35% to 4.25%. After all, what we know for sure is that the decision to reduce the refinancing rate from 2.50% to 2.25% was not unanimous. It was accepted by a simple majority. Consequently, the simple conclusion suggests that this year the Federal Reserve will not mitigate monetary policy. Despite all of Donald Trump's spells, requiring its immediate reduction as much as 1.00%. All this against the background of a clear shift in the mood of almost all the central banks of the world to soften the parameters of their monetary policies. So there are still some concerns that the Federal Reserve will still decide to lower the refinancing rate again at the end of this year. The content of the text of the minutes of the Federal Open Market Committee meeting should remove all issues, but as they say, it is better to play it safe and for the time being proceed from the worst case scenario that the Federal Reserve will continue to mitigate its monetary policy. So that's what basically explains some of the dollar's uncertainty and the desire of investors to cling to any news.

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The text of the minutes of the Federal Open Market Committee meeting will be published quite late, so that the market will wager its contents tomorrow. So light jitters will persist throughout the day. Well, this to some extent favors the single European currency, which can grow to 1.1125.

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The situation is similar for the pound, however, the benchmark is 1.2175.

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Mark Bom,
Analytical expert of InstaForex
© 2007-2024
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