Today, the focus of the market will be on the decision of the American regulator on the monetary policy, which will undoubtedly have an impact particularly to the foreign exchange and generally in global markets. As expected, the outcome of the two-day meeting will not only on the decision of interest rates but most importantly on the forecasts and plans of the Central Bank for the near future.
After the end of the year, the US stock market showed a strong decline in the wake of fears of expanding the trade war between the US and China, which was further stimulated by the December increase in interest rates, as well as, plans to increase it further twice this year as a whole by 0.50% of members. The Fed began to urgently assure investors that the future monetary policy will be revised which will also be joined by the colleagues of Fed Head Jerome Powell. This somewhat calmed the markets and became the reason for the winter rally and influenced the stock and commodity markets, despite the dollar under pressure.
However, the slippage in the negotiations on the terms of mutual trade between Washington and Beijing, as well as the publication of economic statistics, which in general still show good dynamics of economic growth, caused cautious optimism in the markets and a certain ambiguity in understanding the bank's future plans. On the one hand, Powell and most members of the Federal Reserve made it clear that the process of raising interest rates could be stopped and even the regulator's decline in balance could be stopped. But on the other hand, some of the heads of federal banks stated at least one interest rate increase even if the current growth rate was maintained.
This is why the March meeting is extremely important. If the Fed clearly and bluntly informs that it stops the cycle of raising interest rates and stops reducing its balance in the second half of this year, this will undoubtedly be positive for the markets and cause a new wave of optimism, which will pull up the demand for risky assets. In this situation, the course of the American dollar will certainly suffer. But if the decision is not concrete given the uncertainty with the indication that the bank's monetary policy decisions will depend on the economic situation, as well as the external factor, then first of all we can expect an increase in disappointments on the state of trade wars and a decrease in stock indices in the world. There will also be an increase in demand for defensive assets and the US dollar.
Forecast of the day:
The EUR/USD pair consolidates below 1.1355. If the outcome of the Fed meeting is positive for the demand for risky assets, the pair will overcome the mark of 1.1355 and rush to 1.1400. At the same time, a negative and ambiguous decision will lead to a fall in prices to 1.1315 and then possibly to 1.1290.
The USD/JPY pair can also rise or fall on the outcome of the Fed meeting. A positive result will lead to an increase in the price to 112.60 after overcoming the level of 111.80 while negative data will trigger a drop to 110.60.
