Forex analytics. The dollar will sign the world – ForexNews.PRO
The EURUSD roller coaster on the eve of the FOMC meeting became a kind of rehearsal for the upcoming performance. The euro was dealt a very strong trump card, but its draw did not lead to an update of the December highs. Investors are seriously afraid of Jerome Powell’s hawkish rhetoric. Which, in fact, should not frighten. The Fed will have a new chairman very soon.
The speech by the member of the Governing Council, Isabelle Schnabel, was a pleasant surprise for EURUSD. The German woman feels comfortable with market expectations of an increase in the deposit rate. Let the cost of borrowing be at levels appropriate for a certain period of time. However, the acceleration of the European economy, influenced by rising consumer activity, business investment, and government spending on defense and infrastructure, will force the ECB to tighten monetary policy.
After such words from an authoritative official, the futures market has reduced the chances of reducing the deposit rate from 40% to 10% by mid-2026. On the contrary, the probability of its increase by the end of next year jumped to 1 in 3, and the yield on 10-year German bonds rose to the highest levels since March. This allowed the EURUSD bulls to launch an attack and move north. But the music on the shoppers’ street didn’t last long.
Jerome Powell, known for his ability to find a compromise within the FOMC even in difficult times, will have to do the impossible – reconcile the hawks and doves. The former are concerned about high inflation, while the latter are concerned about the weakness of the labor market. The price of a fragile peace is likely to be a reduction in the federal funds rate by 25 bps to 3.75%, followed by signals of a pause in the cycle of monetary expansion.
At first glance, this scenario is favorable for the US dollar. EURUSD risks repeating the story of the two previous FOMC meetings, when the main currency pair unexpectedly fell in response to the easing of monetary policy. If it weren’t for one thing.
Kevin Hassett, the main candidate for the post of chairman of the Federal Reserve, may join the Committee as early as February. If so, what significance will the speech of the retiring Jerome Powell have? Quite possibly, less than before.
The US dollar, with the head of the central bank as a “dove,” risks serious weakening in the medium and long term. Let him show his teeth after the December FOMC meeting. Traders should count on the ragged dynamics of the EURUSD and prepare to turn over frequently – to switch from longs to shorts and back.
