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The escalation of tensions between the United States and Iran last week caused a fall in the stock markets in Europe and the United States. Investors "forgot" for a while about the main theme of the last few days, particularly the possibility of the Fed to start lowering interest rates this year, in a situation of a possible start of military conflict after Iranian air defense shot down an American military drone. This led to a slight slowdown in the weakening of the dollar, which is temporary in our opinion.
After the empty but still frightening world of threats by the US president, the next comments of representatives of the Federal Reserve followed, in which they hurried to report on the possibility of easing monetary policy due to the increased risks of uncertainty about the prospects for global economic growth in the wake of the US-China trade crisis and lower economic indicators country.
Last week, the President of the Federal Reserve Bank of St. Louis, James Bullard, said that he had voted at a meeting of the regulator to lower interest rates by 0.25% due to a strong decline in personal consumption expenditure (RFE), which plays an important role in assessing the Fed's inflation dynamics American economy.
In addition to Bullard's "dovish Fed," three more Central Bank representatives said at their speeches on Friday that they saw risks to the economy and that they were ready to react to this. This was reported by a member of the Board of Governors of the Fed Lael Brainard, Deputy Chairman of the Board of Governors of the Fed Richard Clarida and President of the Federal Reserve Bank of Minneapolis Neel Kashkari.
Given this attitude of the representatives of the American regulator, we can say that the current weakening of the dollar is not unfounded and most likely, it will only increase when the words of the Fed members turn into action. According to the dynamics of futures on federal funds rates, there is already a decrease estimated at 65.7% in the key interest rate at the bank's July meeting.
Assessing the mood that is emerging in world markets, we believe that the dollar expects a further decline, which will only increase when the Central Bank lowers interest rates in the first years in recent years.
Of the important events of this week, we highlight the expected performance of Fed Chairman Jerome Powell and the announced meeting of Donald Trump and Xi Zengpin at the G20 in Osaka, Japan, which can only strengthen the weakening of the dollar. With Powell's statementsPowell, the expectation of lower rates may increase, as well as negotiations between representatives of the United States and the People's Republic of China will become the forerunner of a new trade agreement.
Forecast of the day:
The EUR/USD pair is above the level of 1.1360. It has all the chances to continue to rise to 1.1445 if it holds above the level of 1.1360.
The AUD/USD pair is trading below the level of 0.6965. Growing demand for commodity and commodity assets in the wake of a weaker dollar will drive the rise in the pair. Overcoming the mark of 0.6965 will lead to an increase in prices to 0.7010.
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