Forex Analysis & Reviews: 21.03.2019 - FRS: Fed can completely...

21.03.2019 01:55 PM

FRS: Fed can completely refuse to raise interest rates this year

The US Federal Reserve has left the range of interest rates on federal funds unchanged. The Fed may completely refuse to raise interest rates this year.

The European currency has seriously strengthened its position in tandem with the US dollar after the US Federal Reserve left the range of interest rates on federal funds unchanged yesterday, signaling that it can completely refuse to increase rates this year.

According to the data, the Fed left the range of interest rates on federal funds unchanged between 2.25% and 2.50%, saying that it would respect the calm approach to the issue of changes in interest rates in the future.

Strong pressure on the US dollar was driven by the statement that interest rates will not rise this year, but this decision is not final and much will depend on the incoming data.

The committee still expects the median interest rate on federal funds to be 2.4% by the end of 2019 and 2.6% by the end of 2020. In 2021, the rate will not rise and will remain at 2.6%. In the long run, the Fed expects the federal funds rate to be 2.8%.

Changes in monetary policy are primarily associated with a slowdown in economic growth. Despite the fact that the situation on the labor market remains favorable, the growth of the economy slowed down compared to the 4th quarter, which is reflected in a slowdown in the growth of household spending and investment by companies.

The Fed predicts the GDP growth in 2019 to 2.1% versus the December forecast of 2.3%. Unemployment in the US in 2019 is expected to be 3.7% against the December forecast of 3.5%.

Another important statement from the Fed concerns plans in completing the process of reducing its balance sheet, which will begin in May of this year and last until October. The regulator noted that he would continue to reduce mortgage-backed securities in his holding after the balance reduction process was completed. At the same time, it would reinvest the income from it into treasury bonds. Beginning in October 2019, the Fed will reinvest up to $20 billion a month in Treasury securities.

During the press conference, which took place immediately after the meeting of the Open Market Operations Committee, Jerome Powell said that the US economy is in good shape but the Fed leaders will be patient when considering changes in monetary policy.

Powell drew attention to data on retail sales, which indicate a slight slowdown in consumer spending, while expectations on inflation did not cause concern and remained near the lower limit of the range.

As for the technical picture of the EUR/USD pair, its further growth will be supported and highly depend on the area of 1.1395. To maintain the upward trend, buyers of risky assets need to return to the resistance level of 1.1430, which will lead to the formation of large growth with the update of weekly highs at 1.1460 and 1.1490.

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Fundamental analysis

Jakub Novak,
Pakar analisis InstaForex
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