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19.09.201909:24 Forex Analysis & Reviews: EURUSD: US key rate lowered, but the split in the ranks of the Fed increased

Yesterday's decision of the Federal Reserve on interest rates was quite expected, which did not lead to significant volatility in the market and a serious weakening of the US dollar against several world currencies. The fact that the Fed refused to resume the bond repurchase program, saying that it would resort to REPO operations only if necessary, and allowed the US dollar to hold positions against the euro and the pound.

Exchange Rates 19.09.2019 analysis

According to yesterday's decision, the Fed set the range of interest rates on federal funds between 1.75% and 2.00%. The Fed also lowered the discount rate by 0.25% points to 2.50%.

The committee said that they left the door open for further downgrades, but this would be done if necessary. The federal funds rate is expected to average 1.9% at the end of 2019 and 1.9% at the end of 2020. By the end of 2021, economists forecast the interest rate at 2.1%, and in the long term at 2.5%.

Despite the reduction in rates, serious disagreements arose among Fed leaders regarding the further course of rates. Of the 17 committee members, 7 expected another decline this year, while another 10 opposed such measures. At the same time, a split was also observed in this "ten", where several leaders opposed yesterday's lowering of interest rates.

Exchange Rates 19.09.2019 analysis

During a press conference, the Fed chairman said that rates were lowered to hedge against the background of continuing risks, as investment and exports weakened amid uncertainty about trade policy, and the slowdown in global economic growth harms the US economy.

Despite this, Powell expects the economy to grow at a moderate pace as household spending remains strong, as does the labor market. The only concern is inflation, the level of which is far from the target value.

The head of the Fed also said that if the situation worsens in the economy, a long series of rate cuts would be appropriate. Also, the committee will not hesitate to use the tools to counteract the pressure on the money market in the future. We are talking about recent repurchase transactions from the New York Fed, which poured more than $100 billion into the economy in two days to maintain liquidity.

Jerome Powell also noted that low-interest rates abroad are a sign of weak global economic growth, and they are also putting pressure on US rates

As for other fundamental data, which were published yesterday, the attention was drawn only to the report on the pace of housing construction in the United States, which in August rose to the highest since June 2007.

Exchange Rates 19.09.2019 analysis

According to the Ministry of Commerce, the number of new home mortgages in August increased by 12.3% compared to the previous month and amounted to 1.364 million per year. Economists had expected the number of bookmarks last month to show a growth of 4.1% to 1.24 million a year.

From a technical point of view, after yesterday's decision of the Fed, nothing serious happened in the market. Only a breakthrough of the maximum in the area of 1.1080 will cause larger purchases of the trading instrument, which will lead to an update of the levels of 1.1110 (last week's maximum) and 1.1150. In the scenario of EURUSD decline, the support will be at the level of 1.0990, and larger areas are already located at the lows of this month in the areas of 1.10950 and 1.0920.

*A análise de mercado aqui postada destina-se a aumentar o seu conhecimento, mas não dar instruções para fazer uma negociação.

Jakub Novak,
Especialista em análise na InstaForex
© 2007-2021
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