At the start of the year, markets priced in two interest rate hikes from the . Then that number dropped down to one after dovish remarks from Fed Chair Jerome Powell which led investors to lower their expectations. Now with another surprise we have an even more dovish stance that was not necessarily priced in by investors. The dollar drops like a rock.
The has announced that they will not be raising interest rates and that they do not plan to in the foreseeable future. Chair Powell kept repeating that the economy is in good shape. The dovish surprise was great; besides the downgrade of growth, , and interest rates we now know that the quantitative tightening (QT) program will be decreased to $35 billion per month from previous $50 billion. QT is when the sells assets it has on its balance sheets. All the stocks and bonds it bought over the quantitative easing program ( ) it has been selling since 2018. Which could have caused the fall in the stock market. Besides all this, the next move from the Fed may be a rate cut!
The graph below shows us the equally weighted dollar average of the G7 currencies. It’s the price of the dollar in relation to all the other main currencies. We have broken through the going up and retested it. In classical the next move is a strong impulse down. Fundamental factors confirm this move. What do the other currencies tell us?