The dollar is: the Probability of rate hikes is reduced
According to the final counting of votes, us Democrats with a small advantage to take control of the U.S. House of representatives, while Republicans, again, in line with expectations, retained control of the Senate. Yesterday Donald trump was organized to mark the occasion a press-conference on which tried to radiate optimism and confidence in a constructive bipartisan cooperation on all issues on its agenda, including such toxic issues as immigration and the so-called “Russian invasion” in the presidential election process in the United States.
All sensible people have serious doubts about the validity of such optimism, and to put it simply, there will be legislative battles, increased intra-parliamentary pressure on trump – including in the context of the protracted investigation of spectracolor Muller against him, and, as a consequence, the increase in volatility and the bounce in gold to the levels of the minimum of $1260-1265 per Troy ounce.
But already today, the universal, the emphasis will shift to the two-day session of Committee on open markets of the USA, known as the FOMC. “Signature” tone of the accompanying comments-tongue twisters to the Chairman of the Federal reserve’s Jerome Powell may contribute to a further strengthening of the dollar against most major world currencies. In particular, in tandem with the Euro two days (Thursday+Friday) for at least the last, from the technical point of view, can reach the level of 1,400-1,390.
The Russian ruble, which has already started the drawdown as pending the outcome of the FOMC and falling oil prices may further weaken until 66,95-67,05 rubles per dollar. However, the dollar’s rally this time is unlikely to be long – too much accumulated uncertainty due to the growing influence of the omnipresent geopolitical and pseudo-diplomacy to market the assets.
Evidence supporting this result seems compelling. The macro economic data for the US has improved relative to consensus forecasts for September. So, the US GDP shows a sufficient level of growth, business activity is at a good level, and the current data of PMI indicate growth in October after four months of stagnation. In addition, wage inflation seems to be jumped to a nine-year high.
That is, the rates before the December FOMC meeting, will not rise, and the rhetoric of Powell will retain its original shade of “yastrebinoe”. However, the formal markets have only indirect confirmation of the fact that the previous plans of the Federal reserve remain steadfast, and the rate will definitely be raised: although not on this, but at the next FOMC meeting.
However, in an accompanying review (press conferences at this meeting are not available), the fed may mark a possible slowdown in the housing market and the fall in business investment as a cause for concern slowdown in the us economy. Again, we don’t expect Powell deep (or even superficial) analysis of the impact of trade wars on the fed’s macroeconomic projections. At the last press conference, Powell clearly gave everyone to understand that such things are outside the “areas of interest and prerogatives of the fed”.
“International Financial Center”