The latest forecasts of US regulator officials have raised investor sentiment. The estimate of GDP decline has been improved from June's 6.5% to 3.7%. The forecast for the current year's unemployment rate was also adjusted from 9.3% to 7.6%. Given the President's plans to break off negotiations on aid for the economy, such optimistic forecasts may not be realized. Now the presidential administration has announced the so-called one-time measures. We are talking about support for airlines and a new round of direct payments to the population. However, even these partial incentives are unlikely to be introduced before the presidential election.
Senior Fed officials discussed what signals they should give to markets regarding a new approach to inflation targeting. Note that as inflation approaches the target, the regulator will no longer raise rates for pre-emption.
Many FOMC members have expressed a desire for the Central Bank to tell markets what levels certain indicators need to reach in order to raise rates. Thus, the text of the statement states that rates will remain at near-zero levels until "labor market conditions come in line with estimates of full employment, and inflation reaches 2% with the prospect of a moderate increase."
The markets are now awaiting clarifications on the possible transition to the purchase of longer-term securities. It should be noted that two representatives of the Fed spoke in favor of modifying and expanding the QE program. Charles Evans is confident that the Central Bank has room to increase the volume of quantitative easing. The regulator, at the very least, can soften the policy by changing the duration of the purchased securities.
Another official, John Williams, believes that asset purchases are the most effective tool. In his opinion, the Federal Reserve will actively use it to achieve its goals.
It turns out that before the new year, the Fed may well use the reserve to ease monetary policy. This will largely depend on incentives that US lawmakers have not yet been able to agree on.
There are two sessions ahead – November 4-5 and December 15-16. The November meeting will take place immediately after the presidential election, so do not count on anything too much, the Fed will take a wait-and-see position. But in December, the FOMC may present a surprise.
In the meantime, a reluctance to raise interest rates will help lower the dollar.
It is worth opening buy positions in the GBP / USD pair for two reasons. The first is an increase in the yield spread between 2-year and 10-year treasury bonds. The Fed talks about the observed surplus of dollar liquidity.
The second reason is the continuation of the upward trend in the energy market, which will provide additional support to the pound sterling. Note that in England, the energy sector accounts for about 10% of GDP. The sterling will benefit from strong oil growth. This week, production has been suspended at some fields in North America and Europe, which is positive for oil.
As for the Euro, there is also a trading recommendation to buy. The EUR/USD pair is now completing a downward correction. The target point for further development may be 1.1625. However, another attempt towards the 18th figure is likely to happen. Therefore, we can count on the growth of the quote in the area of 1.1830, after which the decline may begin again.
