US Dollar: the attempted direction of rotation are more insistent

The dollar showed mixed dynamics during the session of Friday, and did not have a determined direction. After the FOMC raised its market expectations for a rate hike in December, up to 70% by his rather aggressive statement, Wednesday, with investors on Friday, weighed in with speeches of three members of the Committee, who disclosed the details of his point of view on the situation.

The head of the Federal Reserve Bank of San Francisco, John Williams, said he did not expect serious shocks on the market because of the beginning of policy normalization balance sheet. The Fed has already announced its intentions for quite some time, the markets have taken into account the plan, and now it only needs to monitor carefully the evolution of the situation. On the topic of rates, Williams has expressed complete agreement with the Fed’s forecasts, saying he sees a long-term objective of the interest rate to 2.5% for both years and indicates that the rate will be increased again this year, and three times in the other.

A little later, the head of the Federal Reserve Bank of Kansas, Esther George, almost word for word, repeated the main arguments of Williams, adding that the postponement of the tightening of the policy could create long-term risks, and called for the removal of the low rate of inflation, that «wages rise faster than prices.» In the meantime, the President of the Federal Reserve Bank of Dallas, Robert Kaplan added that, apart from the strengthening of the «cyclical inflationary pressures,» it is necessary to take into account the structural changes in the economy associated with the transition to a new technological level that offsets inflationary pressures.

Thus, the leadership of the Fed shows a unitarian position, and there is no internal debate that could challenge the implementation of the plan. Also, there is no concern that there will be four vacant positions in the Fed soon. Vice-Chair Stanley Fischer will step down in October, and Janet Yellen, his term will expire in February. Obviously, the markets are not afraid of the interference in the Fed’s policy, in particular by Donald Trump, who during the period of pre-election campaign, he has subjected the policy of the Fed to serious criticism.

During this time, the preliminary reading of the PMI index Markit in the services sector was just below expectations and 55.1 p in August, down from 56.0 a month earlier. The moderator of the continued expansion in the manufacturing sector, the index recorded an increase of 52.8 p 53.0 p, but in the indicators of orders, there is a clear stagnation — there is no growth in export sales, the new orders have a minimum growth rate for the year, as well as the production.

Markit analysts attribute a certain slowdown of the impact of the hurricane, which resulted in a temporary interruption of production and a rise in the prices of raw materials due to supply problems, and who believe that a temporary slowdown should not be given a lot of turnover. GDP growth rate in Q3 are also unlikely to be high. In all cases, the GDPNow model of Atlanta Federal Reserve Bank is forecasting growth of 2.2%, which is clearly not convincing, especially after the Fed has raised its forecast of GDP for the current year.

This week, attention will be directed to the publication of the PCE deflator for the month of August and data on personal income and spending on Friday. The report can have a significant impact on the expectations of the dollar, because it will allow the evaluation of the level of inflation. Also, in the current situation, a positive dynamic is necessary for the personal income tax,as his absence will cast doubt on the position of the Fed, which expects inflationary pressures to be strengthened by exceeding the wage growth.

On Wednesday, a report on durable goods orders in August, will be released. Despite the fact that consumer confidence has been falling in recent months, it remains in confidence at high levels, and the tendency to the growth of large purchases by consumers may indicate changes in the climate of consumption.

The dollar ends the months-long slowdown period. The market will not ignore the Fed and wait for support to macroeconomic indicators, as well as the latest news about tax and medical reform. These developments are more likely to show a growth of the value of the dollar against the yen, the swiss franc and the euro.

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