Market Overview

FxPro: Hawkish Fed’s stance as new pressure trigger

US dollar adds 0.5% on DXY index after a relatively hawkish FOMC comments. During the meeting, Fed raised the rate by 0.25 points to 2.25%, as it was widely expected by the markets. The growth of the dollar was supported by an upward revision for economic projections of FOMC members. The Federal Reserve System has increased its GDP growth forecast this year to 3.1% from 2.8% earlier and has raised it from 2.4% to 2.5% for 2019. The forecasts that were published up to 2021 do not give hints to the expectations of the downturns, suggesting 3 increases in 2019-m in addition to one more tightening policy until the end of the current year.

Trump’s recent dissatisfaction with the Fed’s rise in rates has not resulted in a change in the rate forecast, which has also supported the dollar. The EURUSD pair has returned to the trading range of the previous 4 months and fell to 1.1700 level.

To our mind, the Fed’s focus on the internal data without considering the growing risks for developing countries risks exerting pressure on the markets. Futures on S&P500 lost 0.7% after the start of Powell’s press-conference. The cautious tone has become a leitmotif for the Asian markets on Thursday morning.

The fears of the Fed’s policy tightening were an important factor of the pressure on developing countries’ currencies, which were dependent on the dollar funding earlier in August and September.

Later, we saw some rollback as some of the players thought that the markets had gone too far in their sale-off. Strong Fed’s rhetoric noticeably increases the risks of a new wave of pressure on the EM currencies.

The recent reversal of developing country markets and recent records of the American indices have made markets vulnerable to a new wave of pressure. The Fed’s hawkish rhetoric in these conditions can be an ideal occasion to start a new wave of sales in the EM markets and become a trigger for some correction of the US markets.

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