The content of the final document presented showed that the regulator's view of the state of the economy remains positive but fears were raised about the likelihood of increased inflationary pressures against the backdrop of increased customs duties against the backdrop of the trade wars unleashed by Donald Trump and the actual negative impact of the likely development of the trade confrontation between Washington and Beijing. The protocol revealed some discrepancies in estimates of the level of interest rates between a member of the Open Market Committee (FOMC) but nothing more. In general, we can say that the presented document did not reveal any pitfalls or obstacles in the American Central Bank, which could show that it could radically change its course and begin to further lower interest rates.
Yet, investors are not discouraged, believing that the escalation of the US-Chinese trade war will force the Federal Reserve to change its mind. Also, over the past month, there is a lot that happened including a decrease in the Chinese Central Bank by several stages of the yuan against the dollar. Trump's message says that he can decide to lower the tax burden to stimulate the growth of the national economy. In addition, the American president once again called on the regulator to continue lowering interest rates. In addition, recently, the yield curves of 2-year-old and 10-year-old Treasuries have been reversed twice showing the inversion effect, which, according to the many decades-old traditions, indicates the likelihood of an economic recession or recession in the American economy.
However, if the Federal Reserve continues to ignore the appeals of the 45th president of the United States and focuses on the factor of prospective inflation growth due to the growth of customs duties, then it is unlikely that he will ignore the signals about the slowdown of production activity the external call in the form of the "Chinese trade threat" and the brutal prospects of continuing the collapse of the national stock market with a parallel strengthening of the dollar, which will only strengthen the losing position of US exports in the world market.
That is why markets are still aggressively waiting for continued interest rate cuts and hope that Fed Chairman Jerome Powell will be forced to touch on monetary policy at the Jackson-0Hole economic symposium beginning today and may make it clear what markets should expect to cut in value in the near future borrowing. If this happens, then we expect a local weakening of the dollar and an increase in the US and not only stock indices.
Forecast of the day:
The EUR/USD pair is trading in the range of 1.1070-1.1110 in anticipation of the performance of Jerome Powell in Jackson Hole. Today, the pair can break out of the range both up to 1.1155 and down to 1.1025. If the head of the Fed either signals a continuation of interest rate cuts, the pair will go up. However, if he does not report anything, we should expect her to fall.
A similar picture will be observed in the dynamics of the USD/JPY pair. Hints about the continuation of the reduction in rates will lead to a pair growth to 107.25, but only after overcoming the mark of 106.75. The absence of a signal about the impending reduction in rates will cause a new wave of demand for protective assets and the pair will resume falling to 105.10.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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