22.05.201910:52 Forex Analysis & Reviews: The absence of a signal in the Fed's report on lowering rates in the future will support the dollar: We expect EUR/USD and GBP/USD pairs to decline

Tensions on world markets eased somewhat after the States temporarily relaxed restrictions on the Chinese company Huawei, although, of course, the final cessation of confrontation cannot be said yet.

We have repeatedly pointed out earlier that in the past six months as the global financial markets have been experiencing a most difficult situation, which is difficult to recall in the past twenty years. The struggle of the United States to restore its political and economic influence in the world led to an increase in tension and various conflicts in both the international and economic spheres. Larger-scale trade wars, such as between Beijing and Washington, or no less significant, but not taking place so vividly between Europe and the States. All of these make investors around the world nervous, which raised the degree of volatility. Stock markets react sharply not only to any positive or negative news but also to rumors and speculation. Of course, this has a devastating effect on the markets that have been playing "guessing game" in recent months.

However, assessing possible prospects, we believe that in the foreign exchange market, the strengthening of the dollar in the short term will continue unlike the stock market and commodity markets. There is one main reason for this.

First and foremost, the Fed has not given a clear and clear signal to the markets that can lower interest rates this year. Recently, members of the Fed and its head, Jerome Powell, have increasingly begun to point out the possibility of renewed inflation in the country. As we noted earlier, this is the main reason why the regulator took a pause in monetary policy decisions. This is already an important factor supporting the dollar since it can lead to the absence of the expected prospective decrease in interest rates and as a consequence, to the continued growth of the dollar rate. Moreover, in this situation, the uncertainty of other central banks, whose currencies are traded on Forex against the dollar, either stopped their desire to raise interest rates or started lowering them. They want to make their exports more competitive in the world market.

Assessing this state of affairs, we believe that the absence of any hints at the likely rate cut in the foreseeable future in the Fed meeting today with May will have a supporting effect on the US dollar rate.

Forecast of the day:

The EUR/USD pair is consolidating below 1.1155. The "soft" speech of the ECB President Draghi regarding the prospects for the bank's monetary policy will put pressure on the pair and it may continue to fall to 1.1125.

The GBP/USD pair is also declining, remaining under the pressure of uncertainty due to the uncertainty of the consequences of Brexit in Britain. We consider it possible to sell the pair with a probable local target of 1.2575.