Last Thursday, the European Central Bank introduced a new stimulus package. The ECB lowered the key interest rate on deposits by 0.1% to -0.5% and resumed the quantitative easing program.
At a subsequent press conference, President of the European Central Bank Mario Draghi said that the balance of risks for the economic prospects of the Eurozone "is still shifted in the negative direction," implying the possibility of additional incentives if necessary.
Now financial market participants are turning their attention to the Fed meeting this week. And here the opinions of economists regarding the Fed's further plans diverge.
The Fed is expected to cut rates by 0.25% to 2.00%. This decision has already been largely taken into account in stock market asset prices and in dollar quotes.
Investors will be interested in a press conference and related statements by Fed leaders. If Fed officials do not make harsh statements, the Fed’s decision will not have a strong impact on the US dollar. In this case, the dollar, most likely, after a short-term decline may resume growth, while remaining a protective asset in the context of trade wars.
The dollar may weaken sharply if the Fed leaders announce plans to further mitigate monetary policy. In this regard, the Fed has a much wider field for maneuver than the ECB and other major global central banks. Market participants do not expect any drastic measures from the ECB regarding monetary policy in the near future, and the deposit rate for commercial banks is already in negative territory.
If the Fed expresses a tendency to further stimulate inflation and the US economy, then the pair EUR / USD in this case will get an opportunity for further growth.
Consistently low inflation in the United States is one of the significant factors prompting the Fed to lower rates more actively. The Fed has not been able to sustainably achieve the inflation target of 2% since it was established in 2012. A softer monetary policy by the Fed could help achieve the goal of accelerating inflation.
Last week, US President Donald Trump called on the Fed to make the interest rate less than 0%. Prior to this, he called on the Fed to lower the rate at once by 1%.
Meanwhile, the level of consumer confidence in the United States is high, Americans incomes are growing, and the labor market is in good shape, which allows investors to be optimistic about the US economy.
If the Fed does not give signals aimed at further easing monetary policy, the dollar may resume growth, and the pair EUR / USD - decline. Actually, this is the intrigue regarding the actions of the Fed and the prospects for the dollar.
At the beginning of the today European session, the EUR / USD pair is trading near 1.1065. The Fed meeting will be held September 17 - 18. Probably, up to this point, the EUR / USD pair will hold in a range with a tendency to grow, unless, of course, before that there are any important events of a fundamental nature in the global financial market or in international trade and political relations.
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