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The weakening of the US dollar in the foreign exchange markets stopped on the wave of a slight decrease in expectations of a more aggressive reduction in interest rates by the Fed. This happened after the speech of the Central Bank head, Jerome Powell. Although, he spoke about the likelihood of the beginning of the process of lowering interest rates, but still regarded as a hypothetical event. One more negative was the statement earlier this week by the President of the Federal Reserve Bank of St. Louis James Bullard, who said that he had changed his point of view and believed that the key interest rate should not be lowered by 0.50% at once in the regulator's meeting, whereas 0.25% is enough.
Earlier, investors actually tuned in on the fact that the Fed may be more aggressive in approaching the process of lowering interest rates, which put noticeable pressure on the US dollar rate. However, after the speeches of Powell, Bullard and some other representatives of the bank, these sentiments did not disappear. Although, they were somewhat corrected. Now, the markets believe that the key interest rate can be reduced by 0.25% following the results of the meeting on July 31.
It is worth noting here that the keyword is "reduced". Hence, we expect that the dollar rate in the current situation will still decline, perhaps not so vigorously. Another negative for him may be the data published today by the US GDP for the first quarter if they turn out to be weaker than expectations. The indicator is expected to show a sustained growth rate of 3.1%.
In addition to these data, the values of the index of pending sales in the real estate market will attract attention today. It is assumed that it will show a 1.1% growth in May against a 1.5% drop in April. If the data turns out to be weaker than expected, this will also serve as a pretext for resuming the sale of the American dollar.
In fact, assessing the current market sentiment regarding the prospects for the monetary policy of the Fed, we can say that investors proceed from the principle that any signals of a slowdown in the American economy, an external negative based on the factor of the trade war between Washington and Beijing, will force the Central Bank to soften the course of monetary policy. This means that we should expect a further decline in the US dollar in the foreign exchange markets on this wave.
Forecast of the day:
The EUR/USD pair is above the level of 1.1350. If the economic statistics from the United States are above expectations, this may lead to a continuation of the local decline of the pair to 1.1300. At the same time, if it is weaker, this may lead to a resumption of price growth to 1.1410.
The USD/JPY pair is trading above 107.90 in the wake of a slight decrease in tension around the topic of a possible military conflict between the US and Iran. Preservation of such sentiments, as well as probable positive data from America that may push the pair to further growth towards 108.70 after a possible small correction to 107.90.
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