The fed knocked the dollar and the collapse of stock markets

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The fed raised its key interest rate. The market was expecting it and, of course, laid their hopes in quotes. But despite the fact that most of the bidders were ready to such scenario, surprises could not be avoided. The greatest influence on the dynamics of EURUSD, and all of the dependent market as a whole has had comments of Powell and projections for the next steps of monetary policy. The attitude of the FOMC was not as soft as expected investors, but in General, in line with analysts ‘ expectations, sending the dollar originally in the growth and triggering a sell-off in stock markets.
The fed has maintained an optimistic attitude towards the economy of the United States, minimal lowering forecasts for growth and inflation for 2019. At the same time, also reduced the number projected increases in future year from three to two. In the debt markets expectations is fundamentally not justified. There they teetered between “saving rate” and “one increase per year,” but because the reality was instantly launched a reassessment of the views and quotes.
As a result, a key US stocks continued to take the position, losing on the environment of approximately 1.5%. Futures on the S&P500 continue to fall in the morning, at some point, losing an additional 1%, touching the lowest level since September 2017.
During the year, the S&P500 index has lost 16% from peak levels, accelerated in December and raising concerns the onset of a bear market: this, as we know, is usually accompanied by a decline in the economy.
No less alarming is served and Chinese indices. In light of the sell-off in U.S. markets, the A50 index has broken the support level, which bravely held off the decline already since July.
It is feared that in the conditions of low liquidity for the occasion, stock markets may be flooded with a wave of triggering stop orders. This will result in increased market volatility and entail negative consequences for the economy, dramatically worsening business sentiment and consumer expectations.
The dollar index yesterday reached highs in may 2017, touching the mark to 97.7, but this morning rather quickly retreated, having lost almost all of the growth environment. The largest drop was in relation to the Japanese yen, amid the flight to defensive assets. However, catches the eye and the increased demand for euros.
This morning as the dollar and the market yield of long-term U.S. bonds decline, which, by the way, is rarely sustainable. A continuation of this trend is able to support the demand for shares after an initial failure.
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Alexander Kuptsikevich,
Analyst
FxPro