In the forex market, a fairly new trend is now forming, which suggests that the balance of power is gradually changing in the other direction.
This is a reaction of the market to the news regarding the interest rate on the US Federal Reserve Funds. Let’s take a look at the recent statements by the Fed representatives who spoke about specific improvements in the labor market, rising inflation and stable economic growth rates.
For example, recently, the Federal Reserve spokesman Rosengren said that the country's economy can achieve full employment next year, and therefore there is every reason for a gradual increase in rates. Fed manager Tarullo said he did not rule out the possibility of raising interest rates this year. Dennis Lockhart, President of Atlanta's Federal Reserve Bank, believes inflationary expectations are stable and the labor market is approaching full employment.
Many members of the Fed agree on the need to raise interest rates, as a result of which the attractiveness of the US dollar should grow, but what really happens? But a completely different picture is happening. On these statements, the US dollar begins to gradually decline against other currencies, especially against risky assets such as the euro, the Australian and New Zealand dollars.
When asked why this is happening, only one answer comes: apparently, large players and investors take such statements differently, and during a surge in volatility and growth in volumes, they gain positions precisely in risky assets, since the US dollar is quite overbought, and expectations for its future growth does not coincide with profitability plans of large financial companies and hedge funds.
Another interesting market pattern is interest rate futures contracts. More recent negative changes have led to demand for the US dollar. The probability of the Fed raising rates in September was 15% against 30% earlier this month. At the same time, 57% of market participants believe that rates will be raised in December.
Most likely, the US dollar is strengthening not against the background of large purchases by institutional investors, but in order to mislead speculative traders and collect as many stop orders as possible, thanks to which it is possible to build large static support levels in the future.
Another important factor is the actions of the ECB. At a recent meeting, ECB President Mario Draghi did not make any changes to the scope of the quantitative stimulus program, which was a surprise for traders. Although not in the near future, the regulator is still making plans to curtail this program and tighten monetary policy. And when this happens, the demand for risky assets will grow even more.
So the current and the prospects for the movement of the American dollar will directly depend not on the actions of the Fed, but on the position and attitude of large investors to expectations from the ECB. Let the US dollar still have some strength, and may grow slightly against other currencies, but we are already seeing how the market is gradually changing in the direction of risky assets, albeit not as fast as many would like.