Fed assures that economy 'is okay', Is it worth believing?

The Federal Reserve cut the key rate by a quarter of a percentage point to 1.75%-2.00%. In the press conference, Powell noted the "favourable" economic forecast, explaining that this easing step was to "provide insurance against ongoing risks". Strictly speaking, these comments turned out to be a little hawkish than the market expected, pointing to a possible pause in policy easing.

Overall, Powell was very optimistic about the state of the economy, noting healthy growth rates of employment and consumer activity, despite the lower capital expenditures of companies.

Powell's speech proved to be very convincing, as the economy has recently provided very positive economic data. A few hours before the rate decision, we saw the highest number of construction permits in 12 years. The day before, the Fed had published robust industrial production data, indicating a likely upward reversal in business activity not only in the consumer but also in the manufacturing sector.

Financial markets closed Wednesday's trading with a slight increase of 0.03% for the S&P 500, having recouped the initial losses by more than 1%. Among the anxious moments, it is difficult to ignore the lack of unity in the Fed. Three out of 10 voting members of FOMC dissented from this step. Two of them prefer not to change the rate, and one of them prefer to reduce it by 50 points. There was even more separation in the Fed's forecasts, reflecting the high degree of rate uncertainty even for the regulator. However, the uncertainty is primarily caused by the U.S. - China trade negotiations, out of Fed's sphere of influence.


As is often the case, the Fed may well start a new trend among the world's central banks - a pattern of confidence that the economy will handle the difficulties. If not, the help will quickly come. On Thursday morning, the Bank of Japan also generally supported the overall line with the Fed, deciding not to change the monetary policy parameters.

The softer tone of central banks often supports equities, so the tone of the Fed and the Bank of Japan caused moderate pressure on the equity market, as well as supported the growth of bond yields.

USD Index

The markets attention now focused on the meetings of the Swiss National Bank and the Bank of England. If the desire to actively support the economy will step back to a reluctance to put undue pressure on the pedal of monetary easing, the stock markets may be under some pressure. However, as in the case of the Fed, this pressure can be very moderate and short-lived.

USDJPY lost about 0.5% in the morning after lack of changes from the BoJ. EURUSD treading waters around 1.1000 for two weeks already while GBPUSD several times bounce back from 1.2500 during the week. Most of the "yielding" emerging market currencies are climbing over the last 24 hours. All these are signs of calm in the currency market.


A canary in a coal-mine may be the weakening of the Australian dollar and the Chinese yuan in recent days. Among stocks one can point to a significant decline in revenue forecasts for FedEx, an international logistics company that has seen its worst growth rate in 10 years and significantly reduced its revenue forecasts. These worrying calls, in general, do not look serious enough to talk about a new global crisis right around the corner.


FxPro UK Limited is authorised and regulated by the Financial Services Authority, registration number 509956. CFDs are leveraged products that incur a high level of risk and it is possible to lose all your capital invested. Please ensure that you understand the risks involved and seek independent advice if necessary.

Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. FxPro does not take into account your personal investment objectives or financial situation. FxPro makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any employee of FxPro, a third party or otherwise. This material has not been prepared in accordance with legal requirements promoting the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and may not reflect the opinions of FxPro. This communication must not be reproduced or further distributed without the prior permission of FxPro. Risk Warning: CFDs, which are leveraged products, incur a high level of risk and can result in the loss of all your invested capital. Therefore, CFDs may not be suitable for all investors. You should not risk more than you are prepared to lose. Before deciding to trade, please ensure you understand the risks involved and take into account your level of experience. Seek independent advice if necessary. FxPro Financial Services Ltd is authorised and regulated by the CySEC (licence no. 078/07) and FxPro UK Limited is authorised and regulated by the Financial Services Authority, Number 509956.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis

Latest Forex Analysis

Editors’ Picks

GBP/USD jumps above 1.2850 on Brexit, Bailey

GBP/USD turned positive and soared above 1.2850 after BOE’s Governor Bailey said mention to negative rates does not imply use. EU’s Barnier heading to London for informal trade talks, as negotiations reportedly going “a bit” better.


EUR/USD hits six-week lows below 1.1750 amid dollar demand

EUR/USD is trading at the weakest levels in six weeks below 1.1750 amid resurgent US dollar demand despite the upbeat market mood. Concerns over COVID-19 resurgence in Europe continue to weigh on the euro. 


Gold remains depressed near $1900 mark

Gold remained depressed for the second consecutive session on Tuesday. The downside remains limited ahead of the Fed Chair Powell’s testimony. The set-up still supports prospects for a slide back to August monthly lows.

Gold News

Crypto market shrinks while Bitcoin grows

Ethereum takes the brunt of the falls and gives market share to Bitcoin. Pause in the falls before looking for key supports at lower prices. Ripple plays dangerously and risks looking for support at the $0.20 level.

Read more

WTI: Trapped between key hourly averages ahead of API data

WTI (futures on NYMEX) consolidates the bounce above the $40 barrier, having regained the 21-hourly Simple Moving Averages (HMA), currently at $39.75.

Oil News

Forex Majors