Representatives of the Federal Reserve continue to persistently calm financial markets, demonstrating the regulator's determination not only in putting a stop to raising interest rates, but also to suspend the process of reducing its balance sheet.
On Thursday, Fed representative L. Brainard said that it is likely that the normalization of the bank's balance sheet will be completed this year. In her opinion, its reduction had already achieved its goal. Earlier, this topic was raised by other heads of Federal banks. Recall that the Fed began to reduce the balance in September 2017 and reduced it from a peak of 4.5 trillion dollars to 4 trillion.
Assessing this behavior of the Fed members, we can say that they would hardly have started to talk about this topic if earlier at the end of last year it would not have become clear that the world economy began to stumble in its growth, and the US signal a high risk of its reduction. The start to this was D. Trump's aggressive trade policy, which was the signal for the beginning of the slowdown in the Chinese economy, then European and now the US. The president of the United States, who at every corner broadcasts his contribution to the growth of the national economy, himself, in fact, has become a catalyst for problems. Although, by and large, the prerequisites for such a scenario already existed. In our opinion, the global stimulus measures carried out by the world's largest banks – the Fed, the ECB and so on – only delayed the onset of a more serious global crisis, and did not resolve the accumulated problems from the dominance of global liberal economic policy.
In the foreign exchange market, the dollar was under pressure on Thursday amid data on a strong fall in December retail sales, which showed a decline of 1.8% against an increase in November by 0.2%. The inflationary pressure of industrial inflation also decreased significantly. On a monthly basis, growth fell by 0.1% in January and year-on-year to 2.0% against 2.5% a year earlier.
Against this background, the US dollar was under pressure. As we see it, this can be explained by investors' concerns that a general slowdown in the growth of the world economy will naturally have a negative impact on other national economies. The only thing that restrains the dollar from growing against other currencies is the renewed hope that the Federal Reserve can not only stop the process of raising interest rates and reducing its balance sheet, but even in the wake of the deterioration of the situation, once again to proceed with measures to stimulate QE 2.0.
The forecast for today :
The EURUSD is trading below 1.1300. It remains under pressure, but is still in the "side" against the backdrop of multidirectional forces that do not allow it to grow and fall. We expect the pair to continue to decline to 1.1215.
The GBPUSD is above the level of 1.2785. The uncertainty surrounding Brexit puts more pressure on the pair. We expect a decline to continue towards 1.2730.