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weekly

Powell buoys the dollar [Weekly digest]

Tue, 10/08/2024 - 06:11

30.09.24 - 04.10.24

Results of the previous week

HSI +10.97%

VIX +8.50%

BRN +8.42%

COCOA -8.69%

NG -3.64%

AUDUSD -1.59%

US indices ended the trading week with slight losses. Comments from the US Federal Reserve Chairman Jerome Powell were the main reason for the pressure they experienced. He unambiguously announced that the regulator is not ready to push the issue of rate cuts and that there is no ready-made solution it can adopt at upcoming meetings. This drastically changed expectations of what will happen to the key interest rate. According to data from the CME Group, the probability of the Fed's key interest rate being cut to 4.25% by December fell to 43.9%.

The change in market expectations about interest rate action the US Federal Reserve will take has supported the US dollar. It was able to strengthen against most key competitors, although it's worth noting that the euro had its own reasons to decline, such as weak manufacturing PMI data from both Germany and France, the two largest economies in the eurozone. The Japanese yen is weakening after comments from Bank of Japan representatives that the time to cut interest rates hasn't come yet.

Brent crude oil prices jumped to $78.40 per barrel. The energy resource's price is being buoyed by the escalation of conflict in the Middle East. It can't be ruled out that Iran won't block the Strait of Hormuz, through which oil shipments from the Middle East flow. This would seriously reduce supply since Middle Eastern countries account for a third of global oil supplies. 


Key events of the current week

US Federal Reserve meeting minutes
USD/JPY

DATE
09.10

GMT
18:00

FORECAST
-

PREV.
-

IMPORTANCE
High

At its latest meeting, the US Federal Reserve decided to cut its key interest rate by 50 basis points, which put pressure on the US dollar. However, there has been ample evidence recently that the US economy is doing quite well. Moreover, the Fed chief made it clear that they are in no rush to cut rates further, reducing expectations of two more reductions before the end of the year. The Fed's insufficiently dovish meeting minutes will only increase expectations that it's paused rate cuts. That's good news for the US dollar. In this environment, USD/JPY may continue to move towards 150.00.

Trade USDJPY

The US. Inflation rate
XAU/USD

DATE
10.10

GMT
12:30

FORECAST
2.3%

PREV.
2.5%

IMPORTANCE
High

US inflation continues to fall. This allowed the US Federal Reserve to undertake its much-anticipated monetary policy easing actions. Global analysts expect inflation's slowdown to continue to drop to 2.3%. This is still somewhat higher than the Fed's target level. However, a continued slowdown in inflation allows the US regulator to take its time with additional rate cuts. This is good news for the dollar but bad news for assets denominated in it.For example, gold (XAU/USD) could make a downward correction to 2630.00.

Trade XAUUSD

Germany Inflation rate
EUR/USD

DATE
11.10

GMT
06:00

FORECAST
1.6%

PREV.
1.9%

IMPORTANCE
High

The eurozone's largest economy is showing sizes of a cooldown. The only thing that gives some hope for a quick start to recovery is the decline in inflation, which allows the ECB to transition to stimulating the economy. The first steps in this direction have already been taken, with the European regulator lowering its interest rate. Global analysts expect inflation in Germany to continue to fall, which will increase expectations of the ECB continue to soften its monetary policy. Interest rate cuts by the ECB negatively affect the euro. In such a scenario, once the EUR/USD pair breaks through the support level at 1.1000, it could continue to fall to 1.0900.

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