23.08.201913:47 The market again looks into the words of the Fed, being in complete uncertainty

Long-term review

Perhaps, one of the main financial events of the year will take place today: Fed Chairman Jerome Powell will speak at a conference in Jackson Hole. His speech can give the market an understanding of the direction of the monetary policy of the American Central Bank, not only in September but also in the following months.

In addition, over the weekend, the leaders of the G7 countries will hold talks and may discuss actions undertaken by some states aimed at weakening their national currencies.

Exchange Rates 23.08.2019 analysis

Almost the entire week, the markets can not decide on its further direction. Hence, American stock indices are either falling or rising again. The Jackson Hole Symposium and the G7 Summit could bring important drivers to the markets.

This month, the leaders among the G10 currencies were the Japanese yen and the Swiss franc that are safe-haven currencies. This fact reflects investors' concerns about developments around financial markets. However, the demand for protective currencies is not the only factor that indicates serious concerns of investors regarding the prospects of the global economy. The derivatives market is almost 100% confident in the reduction of interest rates in the United States by 100 basis points over the next year. Such actions by the Fed may be required in response to a slowdown in global growth and sustained economic expansion.

"The market is desperate for leadership. It is at a crossroads, and therefore there is a high demand for safe currencies, `` said Russell Silberston of Investec Asset Management.

Recall that following the results of the July FOMC meeting in the United States, interest rates were reduced for the first time in 10 years. Then at a press conference, Jerome Powell made it clear to the market that you should not count on a series of rate cuts. According to him, it was an adjustment in the middle of the cycle.

"It is possible that during a speech in Jackson Hole, the head of the Fed will signal the possibility of applying more radical incentive measures," said Allianz economic adviser Mohamed El-Erian.

Since July 31, the greenback has been actively growing, using the words of J. Powell about a one-time adjustment as support. Last week, the exchange rate of the American currency reached an annual maximum, although earlier many had expected it to fall in price.

"A hint of a further cut in rates will solve the dilemma of a stronger dollar," said Mohamed El-Erian.

"Now the situation is such that the risks in other countries outweigh the negative in the US," said Alan Ruskin of Deutsche Bank. He is skeptical about the outcome of the G-7 meeting, as G7 member countries have lost their former cohesion. In addition, trade disagreements swept over them. Therefore, the expert advises buying gold on attempts to lower prices and predicts that if the dollar does not rise, it certainly will not give up its position against the currencies of developing countries, as well as the G10 currencies (excluding the yen and the franc).

The head of the Westwood Holdings fund, Adrian Helfert, does not agree with the point of view of Alan Ruskin. He believes that the tone of the performance of Jerome Powell in Jackson Hole will be "dovish", and recommends betting on the growth of the Mexican peso, which is a representative of EM currencies.

"Peso is a highly liquid currency. It will show the fastest reaction in the EM space to the comments of the head of the American Central Bank," said A. Helfert.

The scatter of points of view ahead of Jerome Powell's speech is yet another proof that the market is in a state of uncertainty and hopes to get guidance from the head of the Fed.

Uitgevoerd door Viktor Isakov,
Analytische expert
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