It seems that the two-day rally that started on the currency markets on Monday is already over. The activity in the financial markets is gradually fading ahead of the start of the Jackson Hole symposium, where representatives of the world's central banks will announce likely changes in monetary policy.

Investors' actions are quite understandable and can be explained by the fact that despite the high confidence that the Fed's Chairman J. Powell will announce on Friday the decision of the regulator to begin the process of reducing the volume of buybacks of assets, mortgage, corporate securities, and government bonds in the amount of 120 billion dollars monthly – it is still very possible that he will impose various conditions on this decision, such as maintaining the rate of growth in the number of new jobs and the likelihood of stopping the increase in inflationary pressure.

If this really happens, then the Fed, represented by its leader, will make it clear to the markets that it will be in a state of monitoring the situation in the national economy and, if necessary, can fully revive the QE program at any time.

What does this mean for the markets?

This indicates that the regulator will still continue to stimulate economic growth, although it has slightly adjusted it. In this case, we believe that this will be a signal for investors to resume purchases of risky assets. On this wave, we will witness a resumption of the rally in the stock markets, an increase in demand for commodity assets, and, as a result, a weakening of the US dollar in the currency market.

We believe that this is the most realistic scenario. It is worth noting that the behavior of the US government debt market shows the lack of clear unambiguity in the outcome of Powell's speech. Monetary policy-sensitive 2-year notes show an increase in yields, but they are still in the range. At the same time, the yield on 10-year Treasuries remains under pressure and also shows range dynamics.

In general, we can say that the speech of the Fed Chairman may not be quite what the markets generally expect. There is a high possibility that it will come out as a surprise that could push the markets both up and down.

Forecast of the day:

Gold is likely to consolidate at the level of 1775.45 until Friday with a possible growth.

The USD/JPY pair is also likely to move in the range of 109.50-110.20 before Powell's speech at the Jackson Hole symposium.