The dollar remains strong, thanks to the Fed’s perseverance
October 18, 2018 2:23 pmVideo
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Following on Wednesday, the US dollar, as we expected, received support against major currencies. The main reason for this is the published minutes of the September Fed meeting.
The US currency appreciably added, primarily against the euro and the British pound. On the one hand, supported by the content of the minutes of the Fed’s monetary policy meeting, which not only confirmed the regulator’s desire to continue the process of raising interest rates, which in itself was already taken into account by the markets, understand that the leaders of the Central Bank are ready and consider “necessary to raise the rate on federal funds above the neutral level.” This is a really strong signal, since it did not sound earlier. The bank “exaggerated” the topic of simply gradually raising the cost of borrowing to a certain neutral level. The signal of the desire to raise rates until the economy slows down. This is already something new that the markets should not ignore in any way.
On the other hand, the euro and sterling are under pressure in anticipation of a meeting of EU and UK leaders on Brexit. Here, everything is not so clear and understandable. The summit will be held today, and we can say that if the final agreement is not reached again, this will lead to a drop in the British currency in the Forex market. The single European currency is also likely to not stand aside and will be under pressure.
Another negative for sterling is the continuation of the process of slowing inflation, which, in annual terms, after reaching 3.1% in December last year, fell in September to 2.4%. It can be assumed that if this trend continues, the market’s hopes that the Bank of England, after concluding an agreement on Brexit, will decide to raise rates, may collapse and the sterling will fall not only in the wake of domestic economic problems, but also eliminate expectations to increase rates of local securities.
Assessing the general sentiment that is now being formed in the markets, we believe that the dollar will receive support against all major currencies, since the factor for maintaining the trend of interest rate differences between the Fed and other major central banks remains. We should also expect today either a noticeable increase in sterling, or its precipitous fall at the end of the EU-UK summit. In our opinion, the probability of a positive result is very low.
Forecast of the day:
The currency pair EUR / USD is trading below the level of 1.1500. It can continue to fall to 1.1420, unless a clear Brexit agreement is reached between Britain and the EU. This probability is very high. If all such arrangements are reached, the pair can recover to 1.1560 and continue to grow even higher to 1.1600.
The currency pair GBP / USD is trading above the level of 1.3080. The lack of reaching an intelligible agreement on the exit of Britain from the EU will collapse the pair, and it may fall to 1.3025, and then to 1.2960. If a miracle happens and an agreement is reached, the pair can recover to 1.3240.
The material has been provided by InstaForex Company – www.instaforex.com
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