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Weekly Digest

Central bank decisions are upsetting markets [Weekly Digest]

Wed, 12/21/2022 - 09:28

12.12.22 - 16.12.22

Results of the previous week

FB +4.72%

SUGAR +3.72%

XAUUSD +0.97%

NG -5.15%

VIX -4.32%

GBPJPY -1.84%

The US Federal Reserve, the Bank of England and the ECB have hiked their interest rates. Market fears of further monetary policy tightening are leading to negative sentiment in stock markets. However, the US Federal Reserve lowering the pace of rate hikes couldn't support US indices, which started a downward correction.  This is mainly due to the Fed revising its rate forecast for the end of 2023, increasing it to 5%–5.25%                                      

The ECB and the Bank of England's decisions have caused the euro and the pound to fall. These steps were already priced in, and the "buy the rumour, sell the fact" rule came into play. It's no secret that high interest rates aren't good for the economy, and fears of a slowdown in national GDP growth have also provoked negative sentiment.                

Brent oil prices just can't seem to gain a foothold above $80 a barrel. The energy commodity is under pressure from central banks' decisions to tighten their monetary policy. Moreover, the prospect of further rate hikes raises concerns about economic growth, which harms energy demand forecasts.


Key events of the current week

Germany. GfK's Consumer Confidence Index
EUR/USD

DATE
21.12

GMT
07:00

FORECAST
-36

PREV.
-40.2

IMPORTANCE
High

Germany's inflation rate is at 10%, which is an all-time high. The cost of energy plays a huge role in price pressures. Gas and electricity prices are setting all-time highs, and winter is traditionally the heating season, which seriously increases the burden on households. But higher prices are bringing no optimism to Germans. The indicator has been in negative territory since November 2021, reflecting pessimistic consumer sentiment. If the report shows a deterioration in sentiment, the euro could remain under pressure. The EUR/USD pair could move toward 1.0520.

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The UK. GDP growth rates
GBPUSD

DATE
21.12

GMT
07:00

FORECAST
2.4%

PREV.
4.4%

IMPORTANCE
Medium

The UK's economy is showing a cooldown. It's hardly surprising, really. High energy prices are affecting the industrial and service sectors. Britons, burdened with paying enormous energy and heating bills, are cutting back on spending on other necessities, while the service sector accounts for almost 75% of the country's GDP. Another negative factor is the policy of the Bank of England, which is raising interest rates to limit rising price pressures. Signs of a further economic slowdown could have a negative impact on the pound. The GBP/USD pair could fall towards 1.1930 under the influence of weak statistics.

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The US. Durable goods orders
GBP/USD

DATE
23.12

GMT
13:30

FORECAST
-0.5%

PREV.
1.0%

IMPORTANCE
High

The durable goods orders report is a crucial one. Indirectly, it measures, among other things, upcoming investments in major companies and the willingness of the country's population to make large expenditures. The last three months have seen the indicator rise despite the US Federal Reserve's monetary policy, which has been raising interest rates. The increase is expected to slow down during earnings season, which may not be the most optimistic for US indices. For instance, the Nasdaq (NQ) could move to 10,930.00.

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