Formally, the parameters of the Federal Reserve's monetary policy remained unchanged, but instead of declining, the US dollar continued to rise. The fact is that the American regulator has provided answers to some extremely important questions.
The parameters of the quantitative easing program remained the same, but the market was generally ready for such a thing. This was one of two possible scenarios. And quite expectedly, Jerome Powell announced that the issue of curtailing the program will be considered during the November meeting. However, it was not so much the question of the beginning of the curtailment of the program that worried everyone the most, but the pace of this process. And the Fed Chairman's words were really surprising. This issue will not be only considered in November, but the program will also be reduced in the same month, and not in December, as previously assumed. In other words, the markets will not have time to prepare, so it is better to do it now. In addition, it is planned to completely curtail the program by the middle of next year. Therefore, it will be reduced rapidly. At the moment, as part of the quantitative easing program, the Fed is pouring in $ 120 billion a month. If the program will begin to be curtailed in November, and it will be completed in June, then the volume of the program will decrease by $ 15 billion every month. The curtailment of the previous quantitative easing program was warned for a year, and the process itself took a little more than a year. This time, everything is planned to be done much more quickly.
Moreover, the Federal Reserve System specified its plans to increase the refinancing rate, and if one increase is expected next year, then there will be three at once in 2023. To sum up all of the above, the American regulator literally announced a fairly large-scale tightening of monetary policy, which will begin in just one and a half or two months. In this case, the number of free dollars on the market will begin to decline rapidly even before the end of this year. There is practically no time left for preparation. In other words, the US currency will continue to grow actively, while the growth potential of the euro with the pound is extremely limited. Most likely, it will be of an exclusively temporary nature, more reminiscent of a small local rebound. This means that the trend towards strengthening the dollar continues.
Today's key event is the meeting of the Board of the Bank of England, the results of which are likely to further aggravate the position of the pound. It is clear that the British regulator will not change anything. This has been clear for a long time. But the Federal Reserve System, although it left everything as it is, was quite clear about its plans, thereby warning the markets about what to prepare for. The Bank of England needs to do the same. That is, to announce plans to tighten its own monetary policy. However, the likelihood of such a development of events tends to zero. In recent years, the British regulator has tried to avoid any mention of such a possibility and has taken an exclusively wait-and-see attitude, preferring to act after the fact, following the concrete actions of the European Central Bank and the Federal Reserve System. In light of the results of the meeting of the Federal Committee on Open Market Operations, such a position is extremely weak and will have a detrimental effect on the pound.
In addition, preliminary estimates of business activity indices in both Europe and the United States are being published today. However, it is not worth focusing on them, since the indices should show a widespread decline in both cases. Meanwhile, the data on applications for unemployment benefits will contribute to the further growth of the US dollar. The number of initial requests should be reduced by 22 thousand, and repeated requests by 115 thousand. So the US labor market continues to recover confidently, and this is the main condition for the start of tightening the monetary policy of the Federal Reserve System. In other words, nothing hinders the implementation of the plans announced yesterday.
The number of re-claims for unemployment benefits (United States):
The EUR/USD pair locally broke the support level of 1.1700 amid the speculative leaps yesterday. It is true that the technical pullback will be temporary and will serve as a regrouping of trade forces. A further increase in the volume of short positions is expected after the price returns below the 1.1700 level. This will lead to a movement towards the low (1.1664) of August 20.
The GBP/USD pair has almost completely restored the downward interest relative to the corrective course from August 23 to September 3. The pivot point 1.3600 is still putting pressure on market participants, which ultimately leads to a technical pullback. At the moment, the downward trend cycle is considered the main movement in the market, despite the pullback.
