US Federal Reserve soft position – right or wrong move?

Posted 05 February, 2019

Last week was marked by a softer position of the US Federal Reserve towards the monetary policy, which actually supported the stock markets. The US Central Bank changed its strategy dramatically this January against the December meeting. Specifically, the regulator raised the interest rate that month as well as hinted about intentions to keep lifting the rate gradually.  For now, the US Federal Reserve officials stick to somewhat softer policy. In fact, the Central Bank is no longer states about the possible two-fold increase this year. Still, its representatives noted that the changes can be made at any time.

As the US Fed spokespersons stated, the proactive moves were mostly driven by the global economic environment (trade tensions, slower economic growth and possible no-deal Brexit). However, these factors are hardly the locomotive of the decisions, as the US Federal Reserve is mainly aimed at improving the economic situation, maintaining price stability and the highest employment rate in the USA.

The reports that were released last Friday showed that the US economy is doing well now. The non-farm payroll exceeded expectations by more than 300,000 in January. Despite the decline forecast in December, the number of new jobs generally rose by 241,000 over a 3-month period. This indicates that the Central Bank probably somewhat followed the market pressure and Donald Trump's offensive statements.

The US Federal Reserve will have no other choice but to resume monetary tightening if the economic situation in the country remains strong. In the case of this scenario, the markets may become volatile.  However, this data hardly give enough grounds for any assessments. Besides, US Fed officials are expected to make statements this week. This means that the stock markets can get some support if the officials remain soft in terms of monetary policy.

This week will also be marked by certain events in the UK. In particular, the Bank of England will float a meeting this Thursday. In addition, the public will see the quarterly inflation report. The market experts forecast that the regulator will leave the interest rate unchanged, though may revise inflation and economic upturn outlook. Nevertheless, these events may hardly affect the national currency as the Brexit issue is now in the spotlight. In particular, insiders want to see whether Theresa May and Brussels manage to come to terms regarding the Irish border.

Previous forecast

06 February, 2019 16:11

← Sterling fluctuates expecting BOE meeting this week

The sterling is volatile in the middle of the week. The British currency has been plunging lately facing pressure from better US dollar demand and low economic figures in the UK. Specifically, the latter indicates slower economic growth which probably related to the longlasting divorce process. The sterling posted gains on Wednesday, though the downward movement is possible especially in light of the upcoming BOE meeting to take place on Thursday

Sterling fluctuates expecting BOE meeting this week

Next forecast

04 February, 2019 18:14

Euro shies away from slackening euro-area figures →

The euro has posted some weakening at the start of the week. According to the daily statistics, the euro-to-US dollar exchange rate stands below $1.1450 at some $1.1433, with no short term upward sentiments to be seen. In the current situation, the euro is on the spot, as it refrains from accepting already notable slackening in the region and still expects ECB's upward rate revision. As a result, the currency can eventually face so-called accumulated impact, which may entail much bigger damage. The upward attempts of the euro-to-US dollar rate are limited at the 1.15 handle, while the break of 1.14 is getting more real.

Euro shies away from slackening euro-area figures
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