17.09.202009:51 Forex Analysis & Reviews: Profit-taking in the US stock market led to the dollar's growth

The Fed meeting did not bring anything new. The bank's statement confirmed the soft course aimed at supporting the national economy. In fact, the regulator made it clear that a long period of low interest rates should be expected until 2023.

During the press conference, J. Powell answered questions and said that the current monetary rate is suitable and the bank is ready to adjust it if necessary. He also noted that more fiscal support is likely to be needed, confirming that interest rates will remain low until the country's economy moves far in its recovery. The head of the Fed believes that the current forecasts of the economy's prospects reflect the realities of the day.

So what contributed to the growth of the dollar?

An important point was the assessment of the prospects for the economic recovery of the national economy, which was increased. It is assumed that this year's GDP will contract by 3.7% against the previous June forecast of -6.5%. It will be 4.0% against 5.0% in 2021, 3.0% against 3.5% in 2022, and 2.5% against 1.9% in 2023.

On the other hand, this year's unemployment will amount to 7.6% against the previous forecast of 9.3%, 5.5% against 6.5% in 2021, 4.6% against 5.5% in 2022 and 4.0% against 4.1% in 2023. Inflation on personal consumption spending, in turn, should make 1.2% against 0.8% this year, 1.7% against 1.6% in 2021, 1.8% against 1.7% in 2022 and 2.0% against 2.0% in 2023.

According to the Fed's expectations, it is the prospects of US rising inflation that have been a growing factor for the dollar. The regulator confirmed the August plans to raise the inflation rate by virtually any means. In our opinion, the start of this period is still only a local strengthening given by disappointing data on retail sales, which were generally lower than the forecast although they increased compared to the pre-crisis period. Another reason for the growth of the US currency was a sell-off in the stock market in America. It seems that we are seeing the beginning of the process of redistribution in the portfolios of investors. We can say that it was profit-taking in the shares of companies that were in demand in the conditions of a severe pandemic that caused the fall of US stock indexes. Taking this into account, we believe that demand for shares of industrial, banking, raw materials and other companies, which for the most part are primarily included in the DOW index, and then in the S&P 500, will grow.

Looking at the overall picture, we believe that the dollar is unlikely to rise against the major currencies. Most likely, its growth yesterday will be local.

Forecast of the day:

The EUR/USD pair remains in a wide sideways range of 1.1750-1.1900. It found support at 1.1750. If the price rises above the level of 1.1785, it will continue to rise to 1.1900. At the same time, its decline below this level will lead to the resumption of the fall to 1.1715.

The USD/JPY is trading near the support level of 104.85, a decline below which will lead to a resumption of the price drop to 104.30.