The US dollar rose in the morning hours of the European trading session. Fears about a significant increase in oil prices and the Gulf conflict led to a decrease in demand for risky assets before the start of a two-day Fed meeting.
Almost all analysts predicted a decrease in the target range of rates for US federal funds by 25 basis points. This was until the last days when unexpectedly good data in retail sales and US consumer sentiment, combined with hopes for a breakthrough in resolving the trade conflict with China, weakened arguments in favor of easing the Fed’s monetary policy.
The sharp rise in oil prices after the Saturday attack on Saudi oil facilities further clouded the picture, as it is likely to lead to higher inflationary pressures if oil prices remain high.
According to a forecast from Investing.com, the probability that the Fed will lower the interest rate on Wednesday fell below 65%.
However, according to an ING analysts, the main consequence of the sharp rise in oil prices so far has been a significant increase in the price of the US dollar, except for the option that the Fed will deploy monetary policy in the direction of its exceptional easing, the demand for the dollar will remain high, and the EUR / USD pair will fall in price to 1.05 – 1.10.
The euro was trading at $ 1,1012 before the markets today receive the first significant indicator of the economic situation this month - the ZEW economic sentiment index in Germany.
The dollar also rose to a maximum of four days against the offshore yuan, which remains under pressure after the release of weak economic reports of China on Monday.
The British pound also remained under pressure after the visit of British Prime Minister Boris Johnson to Luxembourg on Monday was further evidence of the absence of any progress in negotiations with the EU on the issue of signing the Brexit transition agreement.