Growing optimism in the market and decline of the dollar after the Fed meeting and Markit’s PMI reports

Manufacturing PMI reports in Europe positively impressed traders. The acceleration of growth when economists expected a slowdown – all the bulls needed in euros. The European currency hit 2018 levels against the dollar. Some of the major players believe that the issue of a medium-term decline of the euro has passed.

The report points to the largest spike in activity in nearly three years. The industrial growth and the numbers of new orders accelerated the most. The second place is taken by exports – the maximum value for the last 34 months. The weak point is employment, which continues to decline.

The Federal Reserve System couldn’t support the dollar. The monetary regulator has set a course for the long-term execution of the asset purchase program. Although the volume will not increase, this is enough to keep risky assets growing. The dollar bulls didn’t find support in either the FOMC statement or Jerome Powell's press conference. According to him, the next few months will be difficult, and improvement is possible only in the second half of 2021.

The UK market is the most optimistic. The likelihood of a deal between the EU and the UK has grown. Futures for a discount rate cut in the BOE fell, and the market predicts the likelihood of a monetary policy easing only in May 2021. Taking into consideration the economy-wide decline of the dollar, the sterling is receiving strong bullish support.

The credit market is growing. The yield of the US Treasuries reached 0.930%. The dollar index continues to fall and reached 89.87.

Market indicators

Major stock indices are showing positive dynamics:

S&P 500 (F) 3.715.38 +21.63 +0.59%

DAX 13.706.90 +140.92 +1.04%

FTSE 100 6.594.65 +23.74 +0.36%

• – SNB News Conference at 12:30 (GMT+2);
• – Eurozone CPI (YoY) (Nov) at 13:00 (GMT+2);
• – Publication of the BOE Interest Rate statement at 15:00 (GMT+2);
• – Philadelphia Fed Manufacturing Index (Dec) at 16:30 (GMT+2).

by JustMarkets, 2020.12.17

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.