On the eve of the final decision of the Fed on monetary policy in the market, the opinions of the participants were divided.
On the one hand, most investors still believe that the American regulator will adhere to a super-soft monetary exchange rate for a significant period of time, since the national economy is recovering unevenly, and inflationary pressure, despite a sharp increase in the last month, is not critical. Another part of market players is beginning to believe that already at the beginning of next 2022, the Fed will begin to smoothly reduce the volume of redemption of government bonds. So, Goldman Sachs believes that the bank will begin in early 2022 to reduce the volume of Treasury redemptions by $ 15 billion per month. Recall that now he buys assets worth $ 60 billion every month.
So, Goldman Sachs believes that today the Fed, represented by its leader J. Powell, can hint to the markets about this. Of course, how it will all actually be, we will already find out tonight after 21.30 Moscow time at a press conference following the meeting. We believe that such a probability exists, but it is extremely small. Powell is unlikely to want to rock the financial markets again now, after he and other Fed members have barely managed to calm them down in the past two months following an uncontrolled surge in Treasury yields earlier this year.
We believe that, most likely, this topic will not be touched upon directly, but if Powell touches it, then only indirectly, talking about the prospective recovery of the country’s economy and its economic growth. As we see it, it is most likely that he will again try to reassure the markets that the current monetary policy of the regulator will be held for an extremely long period of time. At the moment, the Fed does not need a strengthening of the dollar and a sell-off in the government debt market with a simultaneous rise in Treasury yields.
Based on the above, we believe that the preservation of Powell’s “dovish” rhetoric, as well as the final communiqué of the regulator, will lead to a new wave of growth in demand for risky assets, company shares with a simultaneous wave of depreciation of the US dollar. But at the same time, we still suppose to wait for the speech of the head of the FRS and then make the appropriate decisions on transactions.
Forecast of the day:
EURUSD is trading in a narrow range of 1.2055-1.2090 awaiting the outcome of the Fed’s monetary policy meeting. We believe that any hint of a possible change in the timing of the redemption of government bonds will put pressure on the pair, and it, having broken the lower border, will rush to 1.2025. At the same time, the preservation of the “dovish” tone in Powell’s speech and the absence of any hints of a change in the course of monetary policy will lead to the resumption of the growth of the pair, first to 1.2115, and then to 1.2175.
GBPUSD is also trading in the range of 1.3855-1.3925. We believe that Powell’s “dovish” performance will lead to an increase in the pair to 1.3925, and after a breakthrough of this level, to 1.4000. Any concrete hints of a tighter monetary policy in the future will push the pair down to 1.3795.