Markets remain under moderate pressure, despite the Fed comments. Powell’s semi-annual speech in Congress reinforced expectations that the U.S. Central Bank is ready to show more patience in the face of a slowing economy. In fact, it was a further softening of the central bank’s rhetoric, which put pressure on the dollar..
As a result, the USD declined on Tuesday evening to a three-week low, and the EUR/USD crossed the 1.1400 level at one point. Particularly noticeable was the strengthening of the British pound, which rose against the dollar to 1.3280, to the September highs area, receiving additional support due to speculation around a possible Brexit date postponement.
However, it is worth noting that the Fed’s softness was not enough to fuel the stock markets growth. At the end of the day, key US indices turned to a decline. The S&P 500 returned to the lows of the beginning of the week, quickly offsetting its initial optimism.
The U.S. market dynamic indicates the need to maintain a cautious position. We are witnessing increased stocks sales by the close of the New York trading session, which often indicates careful profit-taking by professionals after a two-month rally. At the end of last year, we already saw a similar trend, when stocks were rapidly selling at the end of the day, which led to a worse end of the year for American indices in many decades.
As for the dollar, the demand for it has grown along with the pressure on stocks. At the moment, EUR/USD is losing 0.3%, trading at 1.1370. Meanwhile, the Japanese yen is gaining momentum, including against the dollar, which reflects an increase of demand for safe-haven assets amid growing market participants anxiety. In addition to the demand for safety, the dollar is reinforced by the confidence that other large central banks will also soften their rhetoric after the Fed.
At the moment, it is too early to talk about the risks of large-scale sale-off on the stock markets. A more pragmatic approach shows that we are dealing with the desire of players to take profits after a two-month rally, which occurred despite growing signs of the economic slowdown.
Alexander Kuptsikevich, the FxPro analyst