The Fed kept its monetary policy unchanged last week, saying that the slowdown in the global economy and low inflation expectations were main reasons for this decision. The whole statement was dovish. But the Fed Chairwoman Janet Yellen said in a speech at the University of Massachusetts on Thursday that she expects that the Fed will start raising its interest rates by the end of the year, followed by a gradual pace of interest rate hikes.
Other Fed officials also said this week that the interest rate hike by the Fed this year is still possible.
There is a problem: there are no signs of significant improvement in the U.S. economy. This week's U.S. economic data was mixed again. The housing market and labour showed some improvement, but manufacturing sector remained unchanged in September, while the growth of the services sector slowed in September.
Durable goods orders in the U.S. dropped in August.
The markets are likely to remain volatile.
I think that the Fed saying the interest rate hike this year is still possible wants to calm down markets, so that market participants would not be surprised when it will start raising interest rates.
It is likely that the currency pair EURUSD will test the level at $1.1300, maybe even the level of $1.1400, if the U.S. economic data will negative and there will be no negative news from the Eurozone.
If the U.S. economic data is positive and in case of the negative news from the Eurozone, the currency pair EURUSD may test the level of $1.1000.
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