Results of the FOMC meeting bring significant adjustments to the dynamics of the financial market
The Federal Reserve signalled a possible reduction of the rates
Gold Overwrites 2013 Maximums
Dollar is under pressure
Escalating conflict in the Middle East
The main driver of the market movement last week was the FOMC meeting, the results of which were not unexpected for many traders, but still made significant adjustments to the investment portfolios of many traders. The regulator, expectedly, kept the rate unchanged, and announced its possible reduction at the next meeting in case of the economic indicators deterioration in the U.S. This decision had a strong impact on the dynamics of the Forex market, precious metals market and stock exchanges.
After the results of the FOMC meeting announcement, there was a local change of trends in the currency market. The dollar was actively losing positions across the entire spectrum of the market, as investors began to take into account the high probability of interest rate reduction in the price at the next meeting of the regulator.
EUR/USD pair increased by 1% during the week due to weakening of pressure from the dollar. On Friday, interest in buying this instrument has grown even more after the publication of very good economic statistics from the EU. But, in our opinion, it is too early to talk about a change in the global trend, as the head of the ECB earlier announced the use of new stimulus measures and possible reduction of interest rates, which in the medium term will balance the position of the euro and the dollar. Economic statistics from the two regions will now be the decisive factor.
The GBP/USD pair also managed to strengthen its positions due to the dollar weakening. This week there was a meeting of the Bank of England, the decision of which was quite expected for the market. The regulator left the rate unchanged, but confirmed earlier announced plans to gradually increase the rate over the next 2-3 years. Also, traders kept an eye on the conservative party's votes on the new Prime Minister election. Boris Johnson and Jeremy Hunt have reached the final stage, and they will try to gain the support of 160 thousand ordinary members of the party within the next month.
The pair USD/JPY followed the general dynamics of the market and ,against the background of dollar weakening, it was traded with the descending movement vector. At the end of the week the demand for the yen grew due to the aggravation of the situation in the Middle East, as many investors consider the Japanese currency as one of the protective assets against geopolitical risks.
Precious metals market.
Gold surprised many by its reactions to the results of the FOMC meeting, which in general were quite expected. The price has updated the trading maximums from 2013, showing a weekly increase of almost 4%. Over the month, the asset price jumped more than 9%. FOMC hints on possible decrease of rates at the next meeting significantly weakened the position of the dollar in which the yellow metal is nominated, and also contributed to a decrease in the profitability of the U.S. treasuries, reducing the investment attractiveness of this asset against the gold.
The oil market was able to recover its previously lost positions during the week thanks to the support of a number of important fundamental factors. Firstly, the FOMC meeting significantly weakened the U.S. dollar, making the asset cheaper for investors. Secondly, this week positive data on decrease of oil reserves in the USA and average daily production were published. Thirdly, at the end of the week, the situation in the Middle East became seriously tense. The United States cancelled the decision to strike on Iran at the last minute, and further escalation of the conflict may lead to disruptions in energy supplies and rising prices.
Main stock indices finished the trading week in the green zone on the background of the Central Bank statements on easing of monetary policy and application of stimulating measures to maintain current rates of economic growth. Investors also very positively assessed the reports of a telephone conversation between Trump and Xi Jinping, which increases the likelihood of resolving the trade conflict at the meeting of the leaders on the G20 summit.