Political uncertainty in Rome could become a more serious driver for the EUR/USD quotes than the Fed meeting

If you want something but can't get it, you don't want it bad enough. No matter how people treat Donald Trump, one must admit that the president of the United States is a man who knows how to turn his own desires into reality. During his pre-election race, he repeatedly pointed the attention of the electorate at the possibility of the American economy growing by 3% or more. What seemed unreal with Barack Obama, has become a reality with the current leader of the White House. The Fed raised its forecast for GDP growth in 2018 from 2.8% to 3.1%. Jerome Powell, following the September FOMC meeting, called the US economy strong, and not 8, but now 12 governors believe that the ninth from the beginning of the cycle in 2015 and the fourth this year act of monetary restriction will fall on December.

The Federal Reserve intends to raise the rate once more in 2018, three times in 2019 and once in 2020. The assessment of its long-term value was increased from 2.9% to 3%, and the word "accommodative" was removed from the accompanying statement. Current monetary policy is gradually becoming neutral, although Jerome Powell pointed out that rates by historical standards are still low. The central bank is not going to roll over to the criticism of Donald Trump and stands its ground, and the president himself in response to the next act of monetary restriction said that high rates allow Americans to increase the effectiveness of savings. "They raise rates, because we [the US administration] make the economy work well."

FOMC forecasts for the federal funds rate

Source: Bloomberg.

In general, the rhetoric of the chairman of the Fed and the absence of strong discontent from the leader of the White House can be referred to as bullish factors for the dollar. It feels confident, but the EUR/USD bears do not have enough fresh drivers, as the market already priced in the FOMC's desire to continue normalization at the announced rates. The serve goes from the New World to the Old World, and the focus of investors' attention shifts to Rome and European inflation.

Italy is the largest European debtor in absolute terms (€ 2.34 billion) and second after Greece in relative terms (131.2% of GDP). In 2017, the budget deficit was 2.4% of GDP, and in order to reduce debt, at the current rate of economic growth (by the way, the fastest in the last 7 years), it should move in the direction of 1.6%. The Eurosceptics who promised  gold mountains to the voters demand  at least 2.5% from the Minister of Finance Giovanni Tria. The discrepancy in figures excites the financial markets of the republic and intensifies the political risks of the eurozone.

Europe's biggest debtors

Source: Bloomberg.

Rumors that the lack of a compromise in the Italian government will delay the submission of the draft budget from September 27 to a later period forced the EUR/USD to test the base of the 17th figure. If the information is confirmed, and the bulls will not be able to get support from German inflation, the growth of political uncertainty and the associated volatility of the single European currency will help it decline in the direction of $ 1,165 and $ 1,162.


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Price chart of EURUSD in real time mode

Euro is flying out to Italy

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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