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11.08.202310:26 Forex Analysis & Reviews: Fed may no longer raise interest rates

Latest consumer inflation data in the US did not have much negative impact on markets, primarily because the figure for July came out similar to that of the previous month - at 0.2%. However, year-to-year growth fell slightly below expectations, to 3.2% instead of the forecast of 3.3%. Core CPI also decreased from 4.8% to 4.7% y/y.

Most likely, last month's rise in gas and oil prices, together with the continued decline of rent and housing prices, as well as several other indicators such as the cost of used cars, influenced the data. And although market players already took into account such a scenario, the smaller-than-expected increase and the structure of price growth by sectors fueled expectations that inflation will continue to rise sharply.

This means that after one more hike, the Fed may end the rate growth cycle, followed by its gradual decline.

Also, the latest employment report from the US Labor Department showed a decrease in the number of new jobs to 187,000, significantly below the level of 200,000. If the numbers presented in early September for August turn out to be no higher than 200,000, interest rates may climb by 0.25% one last time, or the Fed may not even raise it at all.

The positive dynamics in the stock markets yesterday will continue today and next week, and the new impetus for this can be today's publication of production inflation data. If the values demonstrate a dynamic similar to yesterday's consumer inflation figures, investors will perceive this as positive, which will lead not only to the increased demand for company shares and commodity assets, but also to exert downward pressure on dollar in the forex market.

Forecasts for today:

Exchange Rates 11.08.2023 analysis

Exchange Rates 11.08.2023 analysis

EUR/USD

The pair continues to trade in the range of 1.0915-1.1045 in anticipation of the inflation and GDP data in the eurozone due out next week. If the former shows a decline, the ECB may become pressured to continue raising interest rates. In that case, the pair will break out of the range and drop to 1.0835. As for the possible movement today, the pair will remain trading within the current range.

GBP/USD

The pair continues to consolidate in the range of 0.8700-0.8800. It seems that it will stay within this area today. However, next week, if the consumer inflation data in the UK show a significant decrease, a decline towards 0.8630 may occur, because the likelihood of further rate hikes may drop.

*A análise de mercado aqui postada destina-se a aumentar o seu conhecimento, mas não dar instruções para fazer uma negociação.

Pati Gani,
Analytical expert of InstaSpot
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