Increase in Fed forecasts will support the dollar

Yesterday, the pound moved pretty much from side to side but in the end, it remained virtually unchanged. As usual, the answer lies in the statistics, which was quite curious. At first glance, everything indicates that the pound was supposed to fall, without stopping. The growth rate of the average wage in the UK has unpleasantly slowed down. The growth rates of average wages without premiums have slowed from 2.9% to 2.8%, and taking into account premiums, it decreased from 2.6% to 2.5%. So not only do salaries with premiums grew more slowly than without bonuses their growth rates have also slowed down. So the reasons for the joy were not these in particular. The last nail in the coffin of the pound was supposed to be inflation in the US, as it unexpectedly accelerated faster than forecasts. It was expected that inflation would accelerate from 2.5% to 2.7%, but it gave a pleasant surprise, accelerating to 2.8%. However, after the feverish jumps back and forth, market participants drew attention to data on the number of applications for unemployment benefits in the UK, as it decreased by 7.7 thousand, while waiting for an increase of 11.3 thousand. In other words, the situation on the market Labor in the UK is improving, at least in terms of employment, and in such a situation, it is quite logical that the growth rate of wages will slow down. So there is no reason for panic.

The rapid growth of inflation in the US removes all doubts about today’s outcome of the meeting of the Federal Commission for Open Market Operations. Now, probably, it’s just impossible to find doubters that the Fed will raise the refinancing rate from 1.75% to 2.00% today. Moreover, a few hours before the announcement of the regulator’s decision, data on producer prices will be published, whose growth rates should accelerate from 2.6% to 2.8%. Given that producer prices are ahead of inflation, their growth suggests that the Fed will continue to raise the refinancing rate. However, the intrigue is that today, there are inflation data in the UK, and it can show its growth from 2.4% to 2.5%, which on the eve of the meeting of the Bank of England makes us think about the possibility of raising the refinancing rate in the UK. The fact is that the increase in the refinancing rate of the Fed has long been taken into account by the market, and today’s decision of the regulator will not lead to a serious increase in the dollar. However, the very possibility of raising the refinancing rate by the Bank of England can be a great inspiration to investors. Moreover, only those in the market are engaged in what they are looking for as an excuse for correction in the dollar, and raising the refinancing rate in the UK is an excellent reason for this very correction.

Of course, there is also a very fantastic scenario of the fact that the Federal Commission for Open Market Operations will leave the refinancing rate unchanged. If this happens, then the two-month growth of the dollar was unreasonable, so disappointed investors will start selling dollars in bulk. However, the probability of this development is almost zero.

It is most likely that even before the announcement of the results of the meeting of the Federal Commission for open market operations, the pound will drop to 1.3300. If the Fed disappoints market participants, then coupled with rising inflation in the UK and an increase in optimistic expectations about a possible decision by the Bank of England, the pound will skyrocket to 1.3550.

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