29.01.24 - 02.02.24
Results of the previous week
US indices have been trading mixed. Their short-term decline was caused by the US Fed's comments at the end of its last meeting. The regulator noted that it intends to return inflation to the target level. Such comments somewhat pushed back the date for possible rate cuts from March to May. At the same time, the state of the US economy isn't causing any concerns, which prevents a strong fall in indices.
In the forex market, the dollar strengthened against the euro as the European Central Bank representatives announced that a rate cut could happen at any moment. Meanwhile, the British pound showed resilience since after the Bank of England's meeting, two Monetary Policy Committee representatives voted in favour of raising the rate, though the BoE's governor said, "We are not yet at a point where we can lower rates".
Brent oil prices were down. Prices once again consolidated below the $80 per barrel mark. Pressure on the energy resource came from rumours that Israel and Hamas had reached a ceasefire agreement. The price drop at the end of the week was restrained by OPEC+'s decision to keep production levels unchanged.
Key events of the current week
The US. Services PMI (ISM)
According to recent data, the US economy continues to show relative resilience. GDP growth exceeded global analysts' expectations. The US Federal Reserve made it clear after its meeting on 31 January that it will rely on incoming macroeconomic statistics to decide on where its key interest rate should be. So far, the US regulator has no reason to rush to cut rates, given the stability of the national economy. The service sector accounts for around 75% of US GDP, so PMI data for this particular sector is quite important. Global analysts expect the indicator to rise. This would only strengthen expectations that the Fed will delay the start of its monetary policy easing. That's good news for the US dollar. In such a scenario, USD/JPY could return to 148.30.
RBA's key interest rate decision
After the Australian regulator raised its key interest rate to the highest level since 2011 in November 2023, it took a break. The regulator notes that inflation is moving towards the target level more slowly than had been expected. However, if one looks at the region's economic health, it's getting harder for the RBA to raise its key rate. The GDP growth rate over the past six quarters has slowed. In addition, China, one of Australia's main trading partners, is also not seeing significant growth, which acts as a limiting factor on the Australian economy's growth. In this context, global analysts are justified in expecting that the regulator will leave its rate unchanged. Maintaining the rather tight monetary policy is good news for the Australian dollar.In such a scenario, the AUD/USD pair could rise to somewhere around 0.6670 in the short term.
Germany. Inflation rate
The German economy remains the biggest in the Eurozone, which is why its health significantly impacts the economy of the entire monetary bloc. As part of its efforts to combat inflation, the ECB has raised interest rates on several occasions. And it finally yielded some results. Inflation has been brought under control. It's also worth noting that both the German and Eurozone economies are showing clear signs of a cooldown, which forced the ECB to change its tune. ECB representatives noted that the key interest rate can be lowered at any moment. Global analytical agencies expect inflation in Germany to drop. A decrease in inflation is a signal for the ECB to lower rates. And this is negative for the euro. In such a scenario, EUR/USD could decline to 1.0680.