Today, the u.s. Federal Reserve will hold a regular meeting on monetary policy issues. Since the meeting is a «pass-through», which is not accompanied by the publication of macroeconomic forecasts and a press conference by the chairman of the Fed. The markets expect no change, while the probability of the increase in the rate is less than 3%, according to CME data. In addition, all the possible plot will be centered around the text of the accompanying statements.
The Committee may add the instruction on employment of the reduction in the text. The markets are ready for the appearance of this expression, that the employment is almost full at this time. It is impossible to keep the previous growth rate of new jobs is purely statistical. However, while the previous downturn may have a negative reaction for the dollar.
Specific attention will turn to the formulation of the inflation outlook. A report on personal income and spending in September led to mixed findings, which were published on Monday. On the one hand, the consumption expenditure increased by 1% compared to August, which is the maximum monthly growth since August 2009, which clearly indicates the high activity of consumers. At the same time, the explanation of this increase is trivial because of the hurricanes which have led to a drastic increase in durable goods expenditure, mainly cars. At the same time, the savings rate continues to decline and reached its lowest level over the past 10 years, while the savings rate of non-disabled people is in free-fall since the maximum reached in December 2012.
Thus, the high level of consumer activity are at risk of falling in the short term. According to the plan, expectations for the launch of a tax reform should reduce the tax burden on consumers, but can no longer stimulate demand, which means that the inflation is also under threat.
Also, the market is preparing for the further growth of the value of the dollar, despite a number of fears. It is expected that the AMERICAN President Donald Trump will announce his choice for the post of the next chairperson of the Fed on Thursday. According to rumors, the position will be given to Jerome Powell, who is known for his moderately dovish position. As a result, the threat of a tightening of financial conditions slightly weaken, which could lead to a rise in the dollar and the demand for the assets profitable, however, the Japanese yen and gold will respond with a decline.
It is also expected that the ISM index in the manufacturing sector for the month of October will be released today. The great difference between the ISM and the PMI Markit may lead to the ISM of leveling at lower levels, which may put a bit of pressure on the dollar.
On Thursday, the preliminary data on labour costs and labour productivity will be published in Q3, the experts anticipate a significant surplus on the T2, which could provide an important support for the dollar, because it will confirm the tendency for stable economic growth.
The major event of the week is the release of October’s employment report on Friday. Because of the frequency of hurricanes, employment growth in September was negative, and in October, the forecasts show a more favorable outcome, such as the number of new jobs has increased by more than 300 thousand, according to experts. This can be considered to be a strong upward pressure on the dollar, otherwise, the growth in the average hourly work, costs may be slow to + 0.3% against + 0.5% in a month earlier. This parameter may become the key to the development of the market reaction to the publication of this report, because it is directly related to the inflation outlook and may influence the growth forecasts on interest rates.
Generally, it can be noted that the dollar is slowly, but with confidence returning to the growth path. The period of uncertainty, investors are waiting for the official presentation of the draft law on tax reform in Congress, which is a powerful engine. The dollar will be in demand, regardless of the preferred tone by the FOMC meeting today. The Japanese yen and the Swiss Franc can become outsiders of the week.
* This market analysis is for information purposes and does not constitute a guide of the transaction.