The Federal Reserve brought disaster upon dollar 

FED found the strength not to search for any strength

One needs to be insane to think the world is OK. Financial markets faced chaos in the summer. Gold fell amid soaring inflation and the bond yields’ collapse to all-time lows but started growing once interest rates on the US debt went up. The pound consolidated even if Great Britain was planning to amend the Brexit deal unilaterally and the Bank of England’s rhetoric looked dovish. The US dollar weakened, although the FED opened its doors to normalizing monetary policy. The S&P 500 didn’t care about the epidemiological state getting worse or downbeat GDP stats. Is that OK? 

– Do you know what “intrigue” means? I’ll tell you tomorrow. 

Jerome Powell talked much but didn’t get to the essence at the FOMC press conference in July. Investors didn’t hear what they wanted to hear. The economy made some progress, but it’s not enough. Mortgage-backed securities purchases may be tapered faster than Treasury purchases, but that’s not for sure. Delta is evil, but should it be feared? That vague wording suggests the FED found the strength not to search for strength any longer. The Central bank voiced its intent to act at a snail’s pace in normalizing monetary policy, and the US dollar went on sale immediately.

Hearing a crow cawing may be a bad omen for the dollar. Powell looks like a crow “cawing” about a hole in the labor market and saying that several positive employment reports are required to taper QE and a rate hike is not on the FED’s agenda. Also, he didn’t hint at withdrawing monetary stimuli. Can the Central bank return to patience that was a funeral strategy for the greenback in the first half of the year?

The FOMC’s meetings in June and July let me think that the FED has too much power over financial markets. It’s often seen as a messiah during recessions, but an aggressive tightening of monetary policy may provoke a slump. Not only does the FED move economic cycles, but also it can afford to break and restore trends. The EURUSD bulls were destroyed in June against the background of rumors about a federal funds rate hike. The same can happen to bears in the absence of clear indications of a QE taper. 

– Darling, you can’t even imagine where I was tonight!

– I can. But I’d like to listen to your version first.

Everyone has their answer to the questions like “Why did the greenback show its worst weekly performance since May after the FOMC meeting?” or “Should the EURUSD sellers start to panic, or is that a mere correction?” It seems one can’t figure that out without alcohol: 

– I need a genie from the bottle!

– There’s only gin.

– I’ll have some!


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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