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Main » 2020 » January » 30 » Dollar watering sprouts coronavirus. whether the epidemic will be in China, the reason for reducing the Fed?
Dollar watering sprouts coronavirus. whether the epidemic will be in China, the reason for reducing the Fed?

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Fed sees signs of a slowing US economy, is ready to tolerate inflation above target with 2% and watering sprouts coronavirus. These are seen the results of the January meeting of the FOMC, which is a reaction to the decline in the yield of Treasury bonds and US stock indexes mixed dynamics of the dollar and the increase in the probability of easing monetary policy in the third quarter of 2020. The Fed has suspended the peak of EUR / USD, but the obvious signals to reduce the rate of federal funds are not filed. 



In contrast to the December in the January FOMC statement accompanying the growth in household spending was "moderate" and not "strong". Considering the forecasted by experts Bloomberg deceleration personal consumption expenditures to + 4.6% and + 3.2% in the second and third quarters to + 2% in the fourth, it becomes clear that the US economy gradually loses steam. In October-December GDP probably support net exports and investment in the housing sector, but in January-March, including due to the Boeing issues, risk indicators seriously slow down. 

According to Jerome Powell, the Fed is not satisfied with the way inflation works. In theory, on the background of a record economic expansion and the lowest unemployment rate in half a century, consumer prices should move up. However, the index for personal consumption expenditures over 12 months, including November grew by only 1.5%. Fed sees in other countries fall in inflation expectations inflation slows, and willing to do everything possible to this did not happen in the United States. In particular, the PCE is willing to tolerate a higher target with 2%. This means that the barriers to increasing the federal funds rate is too high. The chances of its reduction above. Not the best news for the greenback. 


Dynamics of US inflation and Fed


Source: Bloomberg.

Несмотря на то, что Пауэлл утверждает, что слишком рано говорить о последствиях коронавируса для мировой экономики, сам факт мониторинга ФРС за происходящими в Поднебесной событиями означает, что центробанк поливает ростки эпидемии. На рынке усиливаются слухи, что основной причиной снижения ставки по федеральным фондам станет именно она. Действительно, если во времена атипичной пневмонии-2003 доля Китая в глобальном ВВП составляла лишь 4%, то сейчас – 17%. Число инфицированных приблизительно такое же, как и 17 лет назад, а пик эпидемии еще не пройден. 

It should be noted that the coronavirus - a global factor. Even if it increases the chances of the Fed's monetary expansion, it does not necessarily lead to a weakening of the US dollar, after all, and other central banks will be forced to react to it, if the world economy is really in trouble. In this regard, increasing the forecast for German GDP for 2020 from 1% to 1.1% by the German government seems somewhat strange. Berlin sees no reason to panic because of the Chinese epidemic?


Dynamics of GDP in Germany


Source: Bloomberg.


Investors' attention will switch to the Fed releases on the Eurozone GDP data and the US for the fourth quarter. In this case, the resistance breakout to allow 1,103-1,1035 "bulls" on EUR / USD go to the counter.


Analytics and forecast LiteForex



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