Everyone is howling about how Jerome Powell collapsed the dollar, announcing a lower refinancing rate in July. As if no one knew about it until yesterday. It is worth recalling that during a press conference in May, following the meeting of the Federal Commission on Open Market Operations, the head of the Federal Reserve System said that a good half of the board members support two reductions in the refinancing rate by the end of this year. Immediately after that, the demand for futures for lowering the refinancing rate somehow strangely increased. The demand grew so rapidly that Jerome Powell had not yet managed to finish his speech, as there were no sellers left in the market, because they all turned into buyers. So only a direct statement by the head of the Federal Reserve System that before the end of the year, the regulator will reduce the refinancing rate twice. However, the trouble is that during his speech in Congress, he did not say anything about this, limiting himself to regular statements such as the dynamics of inflation and the state of the labor market which are extremely important for the regulator adding about the increased uncertainty for the economy, as well as the need to adhere to an adaptive approach to the conduct of monetary policy. A few days later, only Bullard announced in a direct manner that the refinancing rate would be cut, saying that he would vote on July 31 to make such a decision. But there is nothing new here either, since at the last meeting, Bullard had already voted to lower the refinancing rate. Thus, no statements could provoke panic in the market.
But the most curious thing about all this is that Jerome Powell spoke at 3:00 pm and James Bullard at 6:30 pm, while a sharp weakening of the dollar happened at 1:30 pm (London time) and took a little less than two minutes. After which, the market went bright pronounced sideways. In other words, the statements themselves had no effect. However, in the words of Jerome Powell lies the answer to all questions of interest. The fact is that in May, it was decided to reduce the amount of the monthly repurchase of assets that had accumulated on the balance of the Federal Reserve System since 2008. So, in Congress, the head of the Federal Reserve System said that this program would be suspended altogether until better times in September, adding that it would be reflected in the minutes of the meeting of the Federal Commission on open-text operations, which was, by the way, published half an hour after the Bullard speech. This is something new, and in fact, says that the scale of the forthcoming monetary policy easing will be somewhat larger than previously expected. Moreover, the funny thing is that some media campaigning and misinformation reported such a probability at just 13:30 London time. However, in all subsequent publications, these same means of mass agitation and misinformation scream just about certain statements about lowering the refinancing rate. Which was not.
All this informational panic completely pushed aside the real macroeconomic statistics. Especially everyone has forgotten about industrial production in the UK, a decline of 1.0% was replaced by an increase of 0.9%. Although the growth was forecast at 1.1%, but still it is no longer a recession. In addition, the trade deficit amounted to 2.3 billion pounds against 3.7 billion pounds in the previous month. And in the United States, inventories have increased by another 0.4% at wholesale warehouses once again. By the way, during the last time, the reduction of inventory in the warehouses of wholesale trade was recorded already in October 2017. This is an extremely serious call that an overproduction crisis is approaching.
Today, Jerome Powell will speak in Congress again, but he is unlikely to say something new. Only if the head of the Federal Reserve System directly declares that the regulator will reduce the refinancing rate twice before the end of the year, investors will rush to sell portraits of the dead presidents of the United States. However, Jerome Powell is an extremely cautious and prudent person, and the possibility that he will do something similar is close to zero. But even without this, it will be fun, as the minutes of the European Central Bank’s board meeting are being published today, which, like the minutes of the meeting of the Federal Commission on Open Market Operations, will reflect the intentions of the regulator to mitigate monetary policy. Perhaps, a bit more ambitious than previously thought. Moreover, the content of the minutes of the meeting of the Board of the European Central Bank can neutralize, or even eclipse, inflation in the United States, the data on which are published an hour after the protocol. The fact is that inflation is slowing down from 1.8% to 1.6%, which will confirm Jerome Powell’s words about the growth of uncertainty, as well as the assumption that the Federal Reserve will reduce the refinancing rate twice before the end of the year. In addition to inflation, there are data on applications for unemployment benefits. The total number of which should increase by 1 thousand, that is, in fact, remain unchanged. Accordingly, the market will ignore this data. Well, we should not forget that yesterday’s decline in the dollar was somewhat unexpected and sudden, which inevitably led to the emergence of imbalances, so that the potential for its further weakening is somewhat reduced.
The euro / dollar currency pair, feeling a support within the level of 1.1180, drew an impulse jump, throwing us for more than 70 points. It is likely to assume a primary slowdown with possible rollbacks, where it is necessary to further analyze the incoming information for the formulation of major trade transactions.
The currency pair pound / dollar, approaching to the minimum of the current year, felt a support, forming a correction to the area of the value of 1.2530. It is likely to assume a temporary turbulence in the range of 1.2500 / 1.2540.
The material has been provided by InstaForex Company – www.instaforex.com