FX.co ★ The Fed made a choice in favor of stimulating the labor market and economic growth, putting pressure on the dollar

The meeting of the Federal Reserve did not bring anything new to the markets, which again caused a recovery in demand in the stock markets, increased prices for commodity assets and led to a weakening of the US dollar.

This result of the meeting was expected by us and was based on the most significant reason for the Federal Reserve – stimulating the growth of the labor market and the growth of the national economy.

That is why, for all the serious reasons – an increase in inflation, new outbreaks of coronavirus infection, and a slowdown in economic growth – the Fed has chosen to stimulate the roar of labor and economic growth.

How will the result of the Federal Reserve meeting affect the markets?

We believe that conversations around the topic of the beginning of monetary policy tightening will continue, but without any consequences. This will happen until either inflation continues to rise, or after stabilization it will decline.

We expect that, in general, the continuation of the "dovish" policy by the Federal Reserve will have a beneficial effect on the growth of demand for company shares, especially since corporate reporting is generally positive, which stimulates increased demand for shares.

In the foreign exchange market, the consequences of the Fed meeting will be negative for the US dollar. Earlier, it was supported by expectations that the regulator would be forced to consider the possibility of changing the course of monetary policy from super-soft to more rigid against the background of high inflation. Now, these expectations have weakened, although they have not completely disappeared, which pushes the yields of American treasuries down, as well as the dollar exchange rate. We believe that the ICE index, which reflects the dynamics of the dollar against a basket of major currencies, will continue to decline first to 92 points, and then to 91 points in the near future.

Maintaining a super-soft monetary exchange rate, the Fed stimulates the growth of demand for crude oil and other commodity assets, such as copper, the price of which has suspended the decline.

Regarding the prospects for crude oil, we expect a vigorous recovery in demand, which has already manifested itself not only due to the outcome of the US Central Bank meeting, but also data on the decline in oil and petroleum products stocks in America over the past week. The weakness of the dollar and positive market sentiment will support oil prices.

Summing up, we note that positive market sentiment is likely to dominate in the near future.

Forecast of the day:

The XAU/USD pair continues to grow steadily on the wave of dollar weakness following the results of the Fed meeting. We expect the pair to continue growing to 1824.50, and then to 1832.50.

The USD/CAD pair continues to fall following the results of the Federal Reserve meeting, as well as on the wave of continued growth in the cost of oil. We believe that the pair will continue to fall to 1.2435, and then to 1.2325.