Global markets are ending the week in different directions. In general, the US stock market came under pressure amid an unexpectedly strong result of the Fed meeting, which showed that there are high risks of an earlier change in the course of monetary policy. On the contrary, Europe received support on the wave of generally positive economic statistics, as well as figures on consumer inflation released on Thursday.

If there is a much stronger increase in inflationary pressure in the US, then in Europe, there is a decline within the expected 2.0% at least for the time being. This suggests that the ECB will continue to pursue a balanced course of soft monetary policy, which is a supporting factor in demand for company shares, but at the same time, presses interest in buying the Euro currency.

Investors were disappointed with the US data released on Thursday. In particular, this is the number of initial applications for unemployment benefits, and the index of manufacturing activity from the Federal Reserve Bank of Philadelphia. The number of applications last week rose by 412,000 against the forecast of 359,000 and 375,000 a week earlier. The Philadelphia index declined more than expected – from 31.5 points to 30.7 points against expectations of an exit at the level of 31.0 points.

The published data continue to show that the situation in the US labor market remains ambiguous and even can be said not too positive. The reasons for this have been repeatedly discussed in previous articles. The situation is also quite difficult in the production sector. The impact of the consequences of the coronavirus pandemic is making itself felt, which has a negative impact on business activity.

But let's return to the problem of the consequences of the Fed's June meeting on monetary policy. The regulator left the interest rate at the same levels, except raising the rate on excess reserves by 5 basis points, and was very optimistic about the prospects for economic growth. However, J. Powell's speech was upsetting. The Fed Chairman made it clear during his speech that the strongly increased inflation may linger at current levels for a longer period of time than it was assumed by him and apparently, by the whole Central Bank.

The important thing in his message to the markets was that it was not announced but assumed. A much earlier change in the monetary exchange rate is very likely due to high inflationary pressures. This was already mentioned earlier, but if inflation not only does not stabilize by September, but continues to rise, then the Fed will have no choice but to start first reducing the volume of government bonds redemption, and then make the first increase in the key interest rate by 0.25% possibly either in December or in January. It will be a year earlier, which is still considered.

The market is still dismissing such prospects, but they are quite real. We believe that this probability of events will put pressure on the demand for company shares, commodity assets and support the dollar exchange rate.

Forecast of the day:

The EUR/USD pair remains under strong pressure. We expect it to further decline to the level of 1.1830 if it falls below 1.1890.

The USD/CAD pair is trading above the level of 1.2340. If it holds above this mark, we should expect the continuation of its local growth to 1.2450.