16.01.23 - 20.01.22
Results of the previous week
Last week, US indices showed a moderately positive trend. On the one hand, stock assets are supported by expectations that amid slowing inflation, the US Federal Reserve will act less decisively in its monetary policy. On the other hand, corporate earnings season is in full swing. Many companies are performing better than expected, which also serves to support indices.
The currency market shows less uniformity. Expectations that the US Fed will slow its pace of rate hikes or take a short pause are preventing the dollar from recovering. On the other hand, the US currency is supported by macroeconomic statistics that show the US economy remains flexible despite the rather high interest rate level.
Meanwhile, Brent oil managed to reach a price of $89 a barrel. However, it has so far been unable to break above this level. Generally, the motivators for movement remained the same. The key support is provided by optimistic expectations for oil demand from China, where businesses are reopening after the shutdown. Markets are also assessing the supply outlook amid a possible shortage of Russian oil due to sanctions.
Key events of the current week
US Federal Reserve rates decision
US price pressure continues to fall. This is partly because the US Federal Reserve has already raised the key interest rate several times, reaching the highest level in 14 years. Such inflation dynamics inspired heightened expectations that the US regulator will slow its monetary policy tightening. The rate is expected to be raised by just 0.25%, yet some analysts suggest that the regulator can take a break and keep the rate unchanged. A slight reduction of the US Federal Reserve's pace is already baked into the prices of most assets. However, if the Fed's decision aligns with forecasts, US indices may find support. The S&P 500 could continue its move toward 4,140.00.
Bank of England rates decision
Inflation in the UK has retreated from its peak but still remains over 10%. According to some sources, the inflation rate is 10.5%. That means the Bank of England (BoE) can't follow its American counterpart's path. Despite the fact that a high interest rate could risk slowing down the economy, which is already weak amid high energy prices and a less-than-ideal situation with real wages, the BoE is expected to hike its rate again by 0.5%. However, such a move would likely support the pound. In such a case, GBP/USD could try to break the 1.2420 level and move to the target of 1.2500.
The US. Non-farm payrolls
The state of the labour market remains one of the most important catalysts for the US economy since 75% of the country's GDP is based in the service sector. If there is sufficiently high inflation, some of the key values are both the number of newly created jobs and wage growth. In regular conditions, wage growth is a positive factor since it encourages people to spend more. However, in current circumstances, with inflation in the US exceeding the Fed's target level by over threefold, wage growth could be a reason for higher inflation. As such, a slowdown in new job creation and wage growth could put pressure on the dollar in the present. In this case, EUR/USD could move towards 1.0980.