Exchange rates ahead of FED’s statement

FED’s meeting

The Federal Open Market Committee is expected to issue a statement after meeting at the close of Wednesday’s exchange session in the US. Analysts expect the committee to leave its policy rate unchanged with rates between 2.25% and 2.5%. What will be more interesting for investors are remarks, which are supposed to be more dovish since the employment growth was weak in May and Chinese trade war keeps on escalating. Experts don’t see rates being cut with forecast for such scenario at level of around 20-25% probability according to FED watch tools. The much more probable option is rates cut in July – it stands at around 65% probability. In other news from US, talks between country’s officials and Chinese representation were rekindled as the meeting between presidents Donald Trump and XI Jinping is taking place next week. Financial markets have high hopes for that meeting, but this optimism was not enough to boost cut rate expectations.

Draghi’s dovish remarks

The other factor that highly influenced currencies this week were remarks made by the European Central Bank chief Mario Draghi during his speech in Sintra, Portugal. Draghi in a dovish way stated that policymakers will stimulate the market more, if inflation is still flat. He claimed cut rates is an option, as well as guidance adjustment and more purchases of assets. It was the clearest indication yet from the ECB chief that stimulus to the euro market is ahead, together with monetary dilution. Since benchmark interest rates are already negative and inflation forecast is below central banks guidance, Draghi’s opinions were taken by analysts, investors and experts as a dovish approach to the monetary policy of the eurozone. What is more, it is widely understood that these remarks may inspire a wave of dovish policies and stimulus among other central banks worldwide, which could highly influence bonds, stock, commodities markets and currencies’ exchange rates.

Currencies’ reactions

As investors await FED’s statement, the US dollar has had quite some ride during these two days. On Tuesday it went up against the euro, as the common currency was brought down by Draghi’s dovish speech. The exchange rate was at $1.119, the lowest in two weeks, down by 0.21%. Meanwhile the dollar index against the major six currencies hit its highest value since June 3rd – being up 0.08% to 97.640. On Wednesday the US dollar exchange rate went a bit down, but still it was close to two-weeks highs against the euro. The common currency went down by 0.17% to $1.121 against the US dollar. The euro is still held down as investors reminiscent on Draghi’ remarks and fear more stimulus policy. Meanwhile investors in dollars are not keen to make any bold moves while the FED’s meeting isn’t over yet. The euro was also weaker these days against the British pound. It is getting closer to Boris Johnson winning the race for the Conservative Party leader and the position of the prime minister of the United Kingdom. The GBP went on Tuesday 0.3% higher to 89.235 pence in exchange rate against the EUR, and on Wednesday it gained more to 89 pence.  So the pond is getting stronger and if you want to change Euro it will be more expensive. Compare our exchange rates online while you use our online currency converter.