The dollar is falling again on Thursday. Futures on the DXY dollar index are trading at the beginning of the European session near 98.54, 10 points below today's open price.
Investors evaluate yesterday's statements by US President Donald Trump regarding the monetary policy of the Fed. On Wednesday, he again called on the Fed to lower interest rates, writing on Twitter that the Fed should lower rates "to zero or even lower".
In August, President Trump announced that the Fed should lower its key rate by at least 1% and resume the bond purchase program.
Growth prospects for the global economy and international trade deteriorated amid escalation of the US-China trade conflict.
Trump said on Wednesday that "the US miss once-in-a-lifetime chance due to mutts", meaning the Fed leadership.
At the same time, Fed Chairman Jerome Powell has repeatedly stated the independence of Fed decisions from political pressure. In July, the Fed management cut the rate by 0.25%, calling it a “mid-cycle adjustment”.
Speaking last week, Jerome Powell noted that the prospects for the US economy remain favorable, despite the significant risks associated with weakening global economic growth and uncertainty in trade relations.
Now investors will be waiting for the results of the Fed meeting on September 17-18. With almost 100% probability, they expect the Fed rate cut at this meeting by 0.25%. This decision has already been taken into account in the prices and quotations of the dollar. The greatest intrigue will be caused by the accompanying statements by Fed leaders regarding their future plans.
Any signals on their part aimed at further easing monetary policy will cause a fall in the dollar and an increase in US stock indices.
Meanwhile, today all the attention of financial market participants is focused on the ECB meeting. The decision on rates will be published at 11:45 (GMT), and at 12:30 the ECB press conference will begin.
The ECB is expected to announce a large-scale easing program, including a reduction in deposit rates by 20 basis points, and bond purchases of € 30 billion per month for nine months.
Given the expectation of a tough Brexit, low inflation and a slowdown in the Eurozone, as well as the threat of an escalation of trade wars, the ECB will apply a set of measures aimed at stimulating and supporting the European economy.
At the same time, market participants betting on a package of significant stimulus measures by the ECB may be disappointed. The ECB may lower the deposit rate by 0.1%, rather than 0.2%, as the markets expect, and may delay the quantitative easing program as a “insurance” against increased risks associated with future negative events such as Brexit, escalation trade conflicts and the imposition of duties on cars, as well as a more significant slowdown in the European economy.
If ECB decisions on monetary policy turn out to be more modest than market expectations, then the euro (after a short-term decline) may further strengthen, including in the pair with the US dollar.
Intrigue over the actions of the ECB at its meeting today maintains, which causes increased nervousness among market participants.
It is necessary to be prepared for any actions of the ECB and high volatility during this period of time, since the market reaction can be unpredictable.
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