30.07.202013:43 Forex Analysis & Reviews: EUR / USD: Fed's rhetoric turns out more hawkish than expected.

At the two-day FOMC meeting, committee members left the interest rates unchanged at 0% -0.25%, and confirmed the central bank's readiness to do everything necessary to limit the damage of the COVID-19 pandemic and ensure the recovery of the national economy ...

Fed Chairman Jerome Powell said that household spending in the US has rebounded by nearly 50%, but capital investment has not yet shown a similar dynamic. According to him, the pandemic left a significant imprint on inflation, and the worsening epidemiological situation in the country is certain to put pressure on the economy.

In addition, the upcoming release of US GDP for the second quarter is likely to increase the Fed's concerns on the country's economic outlook, especially since the expected figure is a decline of about 34%, which, if it happens, will be a historic anti -record. The recent depreciation of the dollar indicates that traders expect such an outcome to happen already, moreso because in the coming months, the economic recovery of the US is at risk of slowing down. Strong budget incentives or the creation of a vaccine against COVID-19 would help alleviate this problem, but the likelihood of these events happening soon is rather low. In addition, investors are concerned about the dynamics of the US GDP, but the main problem right now is the uncertainty around the new program that will replace the current payments to unemployment benefits.

Hence, during the last week, market participants were actively selling the US dollar, and the Fed was not able to reverse it.

Now, after the announcement of the results of the July FOMC meeting, the USD index updated multi-month lows around 93.16, but despite the fact that the dollar is trying to bounce off these lows, the bulls are clearly not enough to achieve it.

"Although the Fed's decision on monetary policy was more hawkish than expected, it was not enough to stop dollar sales," said strategists from Standard Chartered.

"The low real and nominal yields in the US, as well as the huge amount of dollar liquidity being injected, remain unfavorable factors for the dollar greenback," they added.

On Wednesday, the Fed decided to extend the dollar swap lines in the central banks of nine countries, as well as REPO programs for foreign and international monetary institutions until March 31, 2021.

Meanwhile, the decline in the dollar continues to benefit the euro, with which in July, the dollar lost more than 4% of its value against the European currency.

In addition, the overall economic prospects for the eurozone looks much better than in the United States, thus, on Wednesday, the EUR / USD pair hit its highest rate since June 2018, rising above the level of 1.18, but then pulled back from those levels.

"Apparently, the bullish momentum is starting to show signs of weakening. Along with the persisting overbought indicators, this suggests that the growth phase, which began about two weeks ago, may soon take a break. However, only a breakdown of the strong support in the area of 1.1680 will signal the pair's readiness for such a break. The EUR / USD may advance above 1.1830, but the next important resistance at 1.1950 is unlikely to come into play anytime soon, " UOB said.