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For more than a week and a half, the USD index showed a decline of one and a half figures, having slumped from 98 points to 96.5 points. The idea of a quick easing of monetary policy by the Fed continues to gain popularity among investors.
The conference of the Federal Reserve Bank of Chicago last week was initially presented as a platform for discussion on the possible change of the inflation target, but ended with the promise of the regulator to act properly in the face of the risks associated with the protracted trade war between the US and China.
If earlier only the most ardent "doves" of the FOMC were speaking in this vein, now Fed Chairman Jerome Powell spoke in a similar format.
The market interpreted the words of the chairman of the Federal Reserve about the readiness of the US central bank to abandon its patient position as an opportunity to speedily reduce the federal funds rate.
Most analysts agree on the need for this step, given the direct impact of the trade conflict between Washington and Beijing on the US economy. In addition, the inversion of the yield curve for short-term and long-term US bonds became even more pronounced, continuing to signal the risk of a recession in the country.
The weak data on the US labor market for May released last Friday became another argument in favor of the Fed rate cut.
It is assumed that the regulator may consider reducing the rate already at the September meeting.
Against the background of a noticeable softening of the Fed's rhetoric, the EUR/USD pair reached highest levels in 2.5 months.
Following the meeting of the ECB, which took place last Thursday, the euro rose, breaking the mark of $ 1.13. The position of the regulator was regarded by investors as less pigeon than the Fed, which caused the strengthening of the single European currency against the dollar.
According to some experts, the growth of EUR/USD may turn out to be short-term, since the eurozone still has many problems of its own. Reuters reported that representatives of the ECB are considering the possibility of lowering the interest rate if the EU economy continues to slow down. Also, the regulator is concerned that inflation expectations can get out of control and that markets do not believe in the ability of the central bank to bring inflation to the target level of 2%.
However, if we proceed from the fact that the vectors of monetary rates of the ECB and the Fed will gradually converge, the EUR/USD pair may well shift closer to 1.14.
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