Чего ожидают от июньского заседания ФРС США

What is expected from the June Federal Reserve meeting

Since the end of May, the US currency has remained under the considerable pressure against a basket of major competitors. The reason for the decline of the American dollar on almost the entire spectrum of the market was the growing probability of the US Federal Reserve rates cut. It was intensified by general risks, criticism of the Fed by the US President D. Trump and weak US macroeconomic indicators.

Fig. 1. The US dollar index chart

The graph of the dynamics of the US dollar index can be traced steady sale of the US currency, strengthened by the weak economic indicators for the United States.

A series of negative statistics

The main pressure on the US currency had a series of negative statistics. So, since the beginning of June, statistics on the United States has been extremely negative.

  • Business activity data (PMI) continued to show a downward trend and updated a low since November 2016.
  • The US employment report for May showed a value lower than expected by 110 thousand, returning this figure to the minimum values ​​for March of the current year and indicating a slowdown in the labor market.
  • The Consumer Price Index (CPI) showed a moderate decline, but against the background of already published statistics, it intensified pessimism.

As a result, a sequence of negative data, enhanced by risks and the expectation of lowering rates in the United States. The US dollar index has updated the lows ​​since March of this year.

Correction driver

In conditions of general oversold of the US dollar on the expectation of the Fed rates cut, the US currency went up sharply, after the publication of retail sales data in the US. It should be noted that the data for May were restrained. The revised data for the previous month was unexpectedly revised upwards, which eased concerns about a sharp slowdown in the US economy in the second quarter.

As a result, the US dollar index showed one of the strongest strengthening, over 0.50%. Also, the American dollar was supported by a technical correction after a decline and the closure of short positions before the weekend.

The probability of the Fed rates cut

The main reason for the growth of the US dollar was the probalility of  the US Fed rates cut from 2.25-2.50 to 2.00-2.25 with a probability of 30% to 23%. On June 14, the probability of the US Federal Reserve interest rates to remain as a result of the June meeting exceeds 76%.

Fig. 2. The graph of the probability of the Fed rates cut in June

 

At the same time, the probability of rates cut by the Fed in July to the levels of 2.00-2.25 increased by several percent during the week and is 67%, offsetting the persistence of interest rates in June.

Fig. 3. The graph of the probability of the Fed rates cut in July

 

The June meeting of the Fed is expected to maintain key interest rates unchanged. In this case, the Fed should signal a reduction in rates in July or September. At least one rates cut must take place. If the Fed signals two rate cuts, the US dollar may collapse.

Anton Hanzenko

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