blog quote 2 en

02 Nov 2021

5 мин

The dollar is losing ground amid expectations of the Fed meeting.

The global economic situation, complicated by lockdowns due to the coronavirus, is gradually recovering, which promises a shift in the U.S. Federal Reserve’s policy.

The Federal Reserve is now formally ready to announce the start of reducing the volume of asset purchases. This is supported both by the inflation dynamics (currently, the figure is significantly above the target level of 2% per year) and by the unemployment rate, which has decreased significantly and is almost back to pre-crisis levels. Financial markets are in uncertainty, awaiting the Fed meeting scheduled for November 3, 2021. Against this backdrop, the Uzbek soum has strengthened against the U.S. dollar, and as of November 1, 2021, according to the Central Bank of Uzbekistan, the exchange rate stands at 10,674.21 soums per 1 USD. In percentage terms, the soum appreciated by 0.27% over the week.

The bond market, a traditional indicator of economic growth, is ominously signaling that global central banks are preparing to raise interest rates from near-record lows.

Traders are betting on interest rate hikes next year in countries including the United Kingdom, New Zealand, and South Korea, amid sharp increases in the cost of living and commodity prices. However, the flattening of yield curves—historically seen as the market’s assessment of economic health—signals growing concerns that such a rapid withdrawal of support could harm the nascent recovery.

«The tapering of asset purchases is expected to be announced at the next meeting, but this process will stretch over several months, and the interest rate will not be raised before 2023»

— said Jan Hatzius in an interview with Bloomberg Television on Monday.

The U.S. dollar came under pressure on Thursday, hitting monthly lows on the DXY index. The pressure was triggered by weak GDP data showing economic growth below expectations, while inflation continued to rise faster than forecasts. The chances that the interest rate will remain at the current level until the end of next year stand at a mere 4%, with markets now considering the scenario of two rate hikes during this period as the most likely.

Interestingly, this shift in investor expectations has been unable to fuel the dollar’s rise or halt the strengthening of stocks. However, investors and traders should remember that markets often behave irrationally in the short term but are fundamentally rational in the long term. In this case, the sustained rise in short-term interest rates poses a significant headwind for stocks and commodities, even though their prices may continue to rise for a while.

So far, the dollar has not crossed the line, continuing to receive support as it dips toward the 50-day moving average. This level could serve as a starting point for a new upward momentum in the dollar, just as it did in September.

It is also worth paying attention to how the U.S. markets close their regular sessions. Over the past three days, selling of American stocks has dominated near the close. This is a clear signal that market professionals are taking profits from the recent gains, despite positive company reports.
On the other hand, these signals should not be given too much weight until the next Fed meeting or even the release of the U.S. employment report next week. The situation could change dramatically in light of new data. One thing is certain: the upcoming week promises to be tense and volatile.

Against the backdrop of the events mentioned above, and in anticipation that the U.S. Federal Reserve will announce the start of tapering the QE program at its November 2-3, 2021 meeting—strengthening the U.S. dollar across the board—it can be expected that this will also affect the Uzbek soum, which is likely to remain in an upward trend and trade within the range of 10,680–10,720 per 1 USD.

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