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Jerome Powell was not the first to talk about the rate hike

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Jerome Powell was not the first to talk about the rate hike

Only the Fed is able to reverse the EURUSD trend so easily

The Fed acts like a shepherd of a flock of sheep. A huge flock of sheep. For the ability to set the direction of its movement, the Fed should be awarded. To understand what a crowd is, it is enough to go down the subway during rush hour. If you die in a subway car at rush hour, you will still most likely get off at the right station and even take an escalator to the street. Back in early June, the Fed was able to turn around this crowd or flock of sheep, which was actively buying up euros, with one rate forecast! Brilliant!

Over the years, people repeat mistakes out of habit, but not in search of new impressions. Before the June FOMC meeting, Jerome Powell talked a lot about his unwillingness to repeat the mistakes of his predecessors, in particular, Ben Bernanke’s. In 2013, Bernanke provoked a taper tantrum after the QE tapering statement. It should be admitted that the current head of the Fed managed not to repeat the mistakes of his predecessor. Not only did Powell and his team methodically prepare the electorate for the withdrawal of monetary stimulus, but they also chose the perfect timing for the appropriate signals. Treasury yields were flat, low volatility and high global risk appetite fueled interest in the carry trade and EM currencies, rumors of additional fiscal stimulus kept stocks afloat. What kind of taper tantrum can we talk about in such a situation?

Almost everything turned out well. After the release of the FOMC forecasts, the S&P 500 continued to rally, rates on 10-year debt did not rise, EM assets did not significantly decrease. It was not possible to take control of only the US dollar. Encouraged by rumors of a federal funds rate hike, the greenback is rapidly strengthening. The $ seemed to be reminded of the dollar smile theory, when the USD index is growing against the background of a flight to safe haven assets due to the recession. Then it falls due to colossal monetary stimulus from the Fed. As a result, it is strengthening again, as the US economy begins to outstrip its peers in terms of growth rates. This time, in the third phase, the greenback is in great shape because of the Fed’s intention to move towards normalizing monetary policy sooner rather than later.

Who would have thought such a thing about the central bank, which at the beginning of the year considered the possibility of targeting the bond yield curve following the example of the Bank of Japan!

– Darling, I want something Japanese.

– Maybe harakiri?

It didn’t go too bad. Although the problem with the transition from the wait-and-see approach and the readiness to allow the economy to overheat to the classical approach of managing inflation had to be solved. However, the main thing in solving any problem is to prevent its creation! The Fed withstood the test with brilliance, but personally for me it left a bad taste in the mouth. Remember who was the first to talk about monetary restriction? It was Janet Yellen who said the US economy could afford to end next year with a higher rate. That would be great for it. But not so long ago Jerome Powell was in the shadow of the “country teacher”, eagerly listening to her words. Is he doing it now?

   

 

 

 

Price chart of EURUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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