The topic of raising the Fed's interest rates made market participants nervous. After the hearings in the Senate at the beginning of the year, where J. Powell's candidacy was approved for the post of head of the Central Bank, he said that the rates could be raised not three, but even four times this year. As a result, investors began to worry again.
Although it is assumed in the markets that the expected rate hike this year by the US regulator has already been considered in asset prices, nervousness amid uncertainty about the start of this process continues to play a significant role. Here, one should take into account the possibility that economic activity will increase as logistics supply chains are established in America and Europe, despite the coronavirus pandemic. Also, high demand for goods will be met, which could lead to an easing of inflationary pressures that can postpone the timing of raising rates. However, the markets are unsure if such a scenario will develop, that is why they are in a state of nervousness, which is manifested in the high volatility of assets.
If everything is slightly less clear with the Fed regarding the prospects for monetary policy, then everything is inert with the ECB. C. Lagarde, head of the ECB, talks about anything, but not about the future of monetary policy. In our opinion, this is due to the complete "subordination" of the European regulator or its following in line with the Fed's policy. The bank cannot fully exercise independence, as its actions depend on the US regulator. It cannot ignore the Fed's interests, which means that it continues to maneuver, not understanding when it will start raising rates. Lagarde is just talking about the need to increase rates. In this sense, the Bank of England turned out to be more independent by not paying attention to the Fed and the ECB and only based on the economic situation in the country.
Analyzing the current situation, given the still remaining influence of the uncertainty factor in the actions of the Fed and other global central banks, the current outlook on the markets is expected to continue, and only the first rate increase in the US will really set them in direction.
At the same time, we believe that the US dollar does not yet have any serious reasons to rise against major currencies. Most likely, it will continue to react to the published data of economic statistics either by rising or on the contrary, declining against major currencies.
Forecast for the day:
The GBP/USD pair is trading above the level of 1.3700. Local weakness of the US dollar may further contribute to the pair's upward momentum towards 1.3880.
The USD/JPY pair is declining amid the nervousness in the markets. Its consolidation below the level of 114.00 may lead to a further fall to the level of 112.70.