Presentation of semi-annual Federal Reserve report on monetary policy could be the most important event of the week. Investors were awaiting confirmation of their assumptions regarding potential interest rate cuts already this month.
In his speech, Fed chairman, Jerome Powell, he expressed concern about poor business sentiment and production slowing. Thus, Powell signaled that the US central bank is approaching a rate cut this month. As a result, after Wednesday's testimony in the Congress, investors increased their bets that the Fed would cut interest rates by 50 basis points, although the consensus still predicts a quarter-point cut. Investors raised their expectations of cutting by half a percentage point to almost 31 percent, which is the highest value since the beginning of the month.
The minutes of the last meeting of the US Federal Open Market Committee showed that many Fed decision makers see a rate cut in the near future. Many of them noticed that the argument for a slightly more accommodative monetary policy strengthened in the face of increased uncertainty about economic prospects.
As a result, the US dollar fell, US stock indices hits new historical highs and gold price increased. A greater chance for a deeper cut of interest rates in the US seems to work against the dollar, which strongly weakened against the euro and other currencies. The EUR/USD exchange rate has been rising fastest since mid-June, approaching the level of 1.1300. The Polish zloty also gained, strengthening to the American currency from 3.81 to 3.78 PLN.
The investors on Wall Street also liked bigger chances for cheap money. The S&P 500 index reached 3000 points for the first time in history. Lower interest rates plus aid for the economy increase stock valuation. Although here, we must remember about the ongoing earnings season, which may be more important at this point than the Fed's monetary policy. However, the mood on the market seems to be excellent at the moment.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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