Demand for the dollar increased yesterday, as the Federal Reserve finally published the conditions under which changes in interest rates may occur.
As announced earlier, the Federal Reserve left interest rates unchanged between 0% to 0.25%, stating that the course of the economy depends on how the situation with the coronavirus develops. It is no secret that the virus will continue to put pressure on the economy in the short and long term, which makes forecasting difficult for economists and experts, and also maintains a fairly high economic uncertainty. On the plus side, general financial conditions in the United States have already improved in recent months, but, according to yesterday's statement, the Fed will continue to buy assets at the same pace, and it may remain to be so until 2023. In addition, the bank announced that it does not plan to raise interest rates until the end of 2023, and, if necessary, it will increase measures to support the economy. Thus, interest rates will remain near zero until at least the end of next year, although most managers expect this approach to continue until the end of 2023. The Fed predicts that the average federal funds rate for 2020-2022 will be about 0.1%
Aside from that, the Federal Reserve also revealed the leading indications under which changes in rates will occur. According to them, interest rates will remain near zero until the full employment threshold is reached, which, incidentally, is just over 3.0% unemployment, and until inflation reaches above 2%.
Given how well the economy is responding to stimulus measures and how much it has shown growth in the summer, the bank believes that the average unemployment rate in the 4th quarter of this year will be in the region of 7% to 8%, lower than the previous forecast of 9% to 10%. As for inflation, the forecast for 2020 is about 1.2%, and in the long term, this level will rise to 1.9%, better than the 1.8% forecast in June.
The Fed is also preparing to make some changes to its lending programs, which will aim to increase the availability of lending to companies in need.
Meanwhile, with regards to macroeconomics statistics, a slight slowdown in the growth of US retail sales in August was published yesterday, but it did not influence much the quotes of the US dollar. The data from the US Department of Commerce said that retail sales rose less significantly than in July, increasing by only 0.6%.
The US housing market also observed growth in September, jumping to 83 points from its previous record of 78 points. This indicates an increase in confidence among US home builders.
As for the EUR/USD, a breakout from the support level of 1.1755 will lead to an instant sell-off of the euro to the area of lows 1.1650 and 1.1570, but this may be prevented as long as the quote manages to consolidate above the level of 1.1800. Such a movement will result instead in a price increase towards 1.1855.