The dollar is not able to hold back after a weak employment report. On Monday, its growth is fairly restrained, despite the positive market relative to the conclusion of a deal with the Mexicans. This is due to the high expectations of a change in the course of monetary policy in the United States. In the run-up to the Fed's meeting, traders are most interested in not so much the fact of the rate reduction as the date, that is, when exactly the regulator will decide to soften. It is worth noting that the expectations of a reduction in rates at the July meeting are currently increased to 80%, in June - to 23%.
Nobody doubts that the growth of the US economy is slowing down. This, including, confirmed the reports on retail, factory orders, real estate purchases. In addition, according to the results of the study, the IMF reported that the fiscal actions undertaken in 2017–2018 - tax cuts, increased military and other expenses - will disappear in the coming years. According to the results of the current year, the real GDP of the United States will expand by 2.6%, and then the growth rates will fall below 2%, representatives of the Fund predicted.
It will be extremely difficult for the Fed to take such a step as lowering the rate, as this will to some extent affect the authority of the regulator and cast doubt on its independence. Donald Trump since last year accuses Jerome Powell and his team of excessively high rates, calling for monetary expansion. Therefore, as soon as the US central bank really starts easing monetary policy, rumors will spread around the market that this has been done to please the White House.
On Monday, Trump again attacked the Fed in his favorite manner, noting that Powell did not listen to him, that the central bank made a big mistake - it raised interest rates too quickly.
Obviously, the bright future of the US economy is in doubt, this is also indicated by the bond market. After the release of the disappointing release on employment in the country in May, the yield on 10-year-old treasuries updated the lowest mark for 2019 and is located at the very bottom of the autumn of 2017. The yield curve is in the red zone. In the old days, this was a clear signal of recession.
But there is one "but." About 20% of the $55 trillion debt market worldwide is characterized by negative rates. Their fall in America speaks of increasing concern for the fate of the world economy. If in the short term macroeconomic statistics for the United States does not get worse, and the S&P 500 is not adjusted, then why lower the rate? The indications of the debt and derivatives markets will begin to look aggressive, and this is a "bullish" factor for the greenback.
The dollar is now in connection with the rising expectations of the Fed rate cut in June looks weaker than the euro. However, a single currency has its own problems, a cart and a small cart. Revaluation will complicate the ECB's already difficult task of achieving an inflation target of 2%. Slow economic growth in China will continue to put pressure on German exports, and the resumption of tensions between the EU and Italy will increase political risks. In addition, the Brexit issue has not yet been removed from the agenda.
By the way, in May, many banks in developing countries trimmed rates, and last week they were joined by regulators from Australia and India. The European Central Bank is ready to change the policy course. However, Jerome Powell's dovish comments will have a greater impact on the euro than the similar rhetoric of Mario Draghi. This is due to the fact that market participants consider the impact of the Fed rate more significant. In addition, Americans have much more room for maneuver. The ECB rate is already at zero, and the range of rates in the US is at 2.25–2.50.
