The European Central Bank has taken a confident step towards what is probably already a super-duper soft monetary policy. Not only that, the deposit rate was lowered from -0.4% to -0.5%, which should completely delight all Europeans who have at least some savings. After all, they will now have to pay banks even more for the fact that these same banks use their money. So another program of repayment of debts in the amount of 20 billion euros per month will now operate until such time as it is necessary. That is as much as the leadership of the European Central Bank pleases. But this is nothing more than the resumption of the quantitative easing program. Moreover, Mario Draghi took another oath on blood that they would not raise rates until inflation stabilizes at 2.0%. To simply put it, inflation should be above the indicated level. In short, we will only see an even greater easing of monetary policy in the future, and the next step will be to lower the refinancing rate. Thus, you should not expect any increase in rates at all. And even Christine Lagarde, who will be the first woman to head the European Central Bank, is unlikely to go down in history as the person who put an end to the era of negative interest rates.
It is clear that after such good news, the single European currency resumed its movement in the direction of parity with the dollar. But less than two hours have passed since the announcement of the results of the meeting of the Board of the European Central Bank, the quotes moved in the opposite direction. Although, the fact is that investors only for a second were distracted from worries about the actions of Mario Draghi, and with just one eye looked at America, where inflation data were published. This was enough to change the mood one hundred and eighty degrees. After all, if preliminary data showed that inflation remained unchanged, then the final data showed that it fell from 1.8% to 1.7%. Everyone was reminded by the recent outcry that the Federal Reserve System should immediately reduce the refinancing rate, as an unimaginable recession is approaching. The decrease in inflation against this background was perceived as a signal that Jerome Powell would indeed lower the refinancing rate from day to day. In this case, of course, no one paid attention to the fact that the total number of applications for unemployment benefits decreased by 19 thousand, while it was supposed to increase by 22 thousand. In particular, the number of initial applications for unemployment benefits, instead of decreasing by 4 thousand, decreased by 15 thousand. The number of repeated applications, which was supposed to increase by 26 thousand, decreased by 4 thousand. And the state of the labor market, from the point of view of the monetary authorities, is as important a factor as inflation. In other words, everyone was looking at what they wanted, not what they needed. This means that the emerging weakening of the dollar is due only to emotions.
Since the movement is largely due to emotions, a return to reality is inevitable. However, it is worth the wait, and today, we are unlikely to see it. The fact is that data on retail sales in the United States is published today, which may show a slowdown in growth from 3.4% to 3.2%. Given the slowdown in inflation, a decrease in consumer activity is an explosive mixture, since it threatens to reduce the profits of American companies. Investors will keep this in mind, as well as use it as an additional argument in appeals to the Federal Reserve to lower the refinancing rate. So if the forecasts come true, then the dollar simply has nothing to grow for now.
Dynamics of retail sales (USA):
Thus, the most likely development of events is the further growth of the single European currency, is not strong. Nevertheless, it is worth waiting for growth to 1.1125.
As long as there is a lull in political battles in the United Kingdom, the pound will be sensitive to American statistics. However, the growth potential of the pound is limited even more than in the single European currency, due to a much greater overbought. Consequently, the pound should expect growth to 1.2425.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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