ECB and Federal Reserve Board meeting, UK parliamentary elections and the US-Chinese trade negotiations - market reaction
The U.S. and Chinese trade negotiations
ECB and the Fed meeting
Parliamentary elections in the UK
The week was rich in important economic and geopolitical events that significantly increased the volatility of major financial instruments. The British pound sterling tested 1.35 for the first time since June 2018, the EUR/USD pair has renewed its 4-month high, and the dollar index is traded around 5-month lows.
After consolidation in a fairly narrow range in the second half of the week, we saw a sharp increase in volatility of the main instruments. The results of the Federal Reserve and ECB meeting were the driver of the market movement. As expected, both regulators left the interest rates level unchanged. The main attention of investors was focused on Jerome Powell and Christine Lagarde's speech.
Powell in his speech tried to adhere to neutral rhetoric, but investors negatively perceived his statement that the Fed will refrain from raising interest rates until he sees a stable and strong growth of inflation. The market perceived this as a signal that the Fed will maintain its key monetary policy parameters unchanged throughout 2020. These words were the impetus for the weakening of the dollar, the index of which on Friday fell to its lowest value since mid-July.
Christine Lagarde refrained from assessing the previous ECB policy and paid a lot of attention to structural reforms and analysis of the EU economic prospects in her speech. The market reaction to her speech was rather restrained, as investors were expecting the publication of the first results of the parliamentary elections in Great Britain.
Boris Johnson ‘s Conservative Party won the parliamentary elections with confidence. The GBP/USD pair reacted with growth to the level of 1.35, and EUR/USD tested the level of 1.20. Investors consider this result of the parliamentary elections as the most favorable for British politics and economy. Boris Johnson promised to leave the EU by January 31, 2020 and put an end to the uncertainty.
Precious metals market
Gold was traded in different directions during the week. Against the background of a sharp decline in the dollar, the precious metal tested the level of 1486.00, updating its 5-week high. But the buyers did not manage to stay at this level, as the pressure on the price was put by the news of the U.S. and China's agreement to cancel the previously introduced trade restrictions. On Thursday Trump wrote in his twitter that the countries are close to an agreement.
The oil market ended the trading week in the green zone. Brent and WTI showed growth of more than 1%. The main driver was the news about the possible signing of a trade agreement between the U.S. and China. Investors hope for improvement of the situation in international trade and increase of demand for energy carriers.
Global stock markets close the trading week in the green zone. Support was provided by reports on possible signing of a trade agreement between the U.S. and China before the end of the year. Information sources reported that the parties have agreed on the complete abolition of previously introduced trade restrictions. The United States will postpone the introduction of new duties, and China is committed to purchase agricultural products from the United States in 2020 for the amount of $ 50 billion.