Will the dollar policy of the fed
Current week was full of macroeconomic events. Moreover, it occurred during the most quiet period of the summer lull, so most of the markets there were no major movements. The most striking event promises to be the speech of the fed’s Powell at Jackson hole, which will start at 14:00 GMT.
Markets in anticipation that the fed will reinforce expectations of a rate cut in September and will celebrate the flexibility of the approach to the question of rates. It is worth noting, historically, the caveat: the fed, since Greenspan, that is from the 1980s were distinguished by their ability to “respond without responding”, i.e. to create the maximum fog surrounding the upcoming decisions, so as not to limit myself in the following steps.
Much more likely that Powell will blame trade war in the deterioration of the economic prospects and link their next steps with the negotiations of the China-United States.
For its part, weekend trump and other G7 leaders are likely to demand from Central banks active steps, noting that it’s not time to strengthen fiscal incentives. This shifting of responsibility can become a major sign of the times in the coming months, and the intensity of disputes will probably only increase as the deterioration of economic sentiment.
In addition to the shifting of responsibility between the Central Bank and the government, the fed also embroiled in a kind of tug-of-war in the expectations for rates.
Markets expect some very aggressive steps by the fed, suggesting three more cuts before the end of the year. This position supports quotes stock markets and hinders the strengthening of the dollar. I must say that last week officials are trying to lower the bar of those expectations. After all, as Esther George – which is not supported the last rate reduction, and Harker – who gave his vote for a reduction was noted in speeches this week that the economy needs additional stimulus at this time.
In our opinion, it is the position of “vague logic”, most likely, and you should expect from Powell. Possible line of his speech is reduced to sleduyushemu: “we are ready to support the economy with lower rates if necessary, but this is not necessary”. If we’re right and the fed will curb market expectations, the dollar is quite able to take off from current levels near 2-year highs and begin a rapid growth in the area of peak end of 2016, adding another 5%, reaching 103 at the USDX and EURUSD 1.03.
If the justified expectations of the markets, it may be the beginning of a prolonged decline in the dollar as will become apparent softening of rhetoric of the Federal reserve relative to the previous statements.
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