The new week begins on the global currency markets with the expected decline in investor interest in buying company shares, the continuation of the decline in crude oil prices, and the strengthening of the US dollar.
The main reason for this behavior in the markets is still the topic of the Fed's expected decision on monetary policy, which begins tomorrow and ends with the announcement of such on Wednesday.
What can be expected from the Fed and what are the markets counting on?
It can be recalled that the main reason why the course of the monetary policy of the US regulator has to change is the strong inflation growth over the past six months, which was based on the unprecedented measures of social support from the Administration of President J. Biden, which consisted of payments to the American population, if not to a large extent a lot of money, then quite sufficient for the low-income strata of society to live. Financing citizens with "helicopter money" amid the tragedy of the coronavirus pandemic, caused inflation to soar to thirteen-year-old levels.
The increase in inflation caused fears in the US Central Bank and forced many Fed members to start a discussion about the need to stop stimulating the economy, starting from the start of reducing the volume of government bonds and corporate mortgage securities with a monthly volume of about $ 120 billion, despite the widespread weakness of the labor market due to two reasons – the impact of COVID-19 and the possibility of the general population not going to work while receiving benefits. In view of this, the markets began to be careful, which was manifested first in the stagnation of stock indices, and in their decline since September began.
In reality, investors believe that the Fed will start changing the monetary rate in November. One question remains: how fast will the volume of asset repurchases decrease? If this process goes noticeably softer with great caution, then the fears of the markets will be somewhat corrected, which may cause a new wave of demand for risky assets and a weakening of the US dollar. But in this situation, we should not expect a noticeable growth of the US stock indices, although we admit the possibility of their local growth to recent highs.
In addition, it is unlikely to expect a strong decline in the US currency. It will most likely make a downward correction, but it may not show a strong decline. The main fact supporting it remains the very change in the Fed's course of monetary policy.
In any case, we will find out how events will develop in reality in the near future, and the impulse for this will be J. Powell's press conference this Wednesday following the FRS meeting.
Forecast of the day:
The price of WTI crude oil almost tightly approached the target level of 71.00. Its breakdown will most likely lead to the continuation of the decline to the level of 67.85.
Spot gold approached the local low of 1741.20 amid pressure from the US dollar and uncertainty about the future of the Fed's monetary policy. The price may consolidate at approximately the current levels and will receive support if the plans for a change in the monetary exchange rate turn out to be softer. In this case, the price will surge to 1782.00. If the Central Bank, represented by its leader, is crueler in assessing future policy, then the price decline will continue by 1716.55.
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