Following the release of inflation and employment data from the United States, which indicated an impending decline in interest rates by the Federal Reserve in its meeting on the 18th of this month, it has become evident that such a decision has already been reached.
The statements by the US Treasury Secretary Yellen and the Federal Reserve officials indicate that inflation has been effectively addressed. Therefore, there is no reason why the Fed should not cut rates by 50 basis points. With this respect, I estimate that the Federal Reserve is expected to reduce the benchmark interest rate by 0.25 percentage points..
Looking at the monetary policy implementation issues, the joint action of the Federal Reserve and the European Central Bank will block the potential divergence of interest rates between the dollar and the euro. This situation is likely to have a beneficial effect on currency market volatility, which will be a primary advantage for the stock market. Please note declines in currency market volatility are associated with rising stock markets and the Euro currency from historical perspective.
However, a different scenario is applicable in the context of the global economy. In response to economic deceleration, the main effects are a decline in the prices of non-lead gasoline, petroleum, and wheat, which have the greatest impact on the dollar.
The total retail sales figures from the United States are expected to show a decline soon. Consequently, the potential for an increase in the value of the currency before this decline may be limited. In this scenario, investors may perceive potential declines as an opportunity to buy EUR against the USD.