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Will the ECB change its interest rate? [Weekly digest]

Tue, 06/04/2024 - 06:14

27.05.24 - 31.05.24

Results of the previous week

COCOA +14.46

VFC +7.80%

VIX +2.24%

PA -8.86%

NG -3.93%

NQ -1.64%

US stock indices remained under pressure last week. The key factor remains expectations about the US Federal Reserve's interest rate level. Recent macroeconomic reports and statements by Fed officials minimise expectations that the regulator will cut rates at its September meeting. The markets aren't very optimistic about this.

The currency market recorded mixed dynamics. For the euro, for example, expectations that the ECB will cut rates at its June meeting are a negative factor. Expectations of an imminent rate cut also put pressure on the Canadian dollar. At the same time, as was noted earlier, the Fed isn't expected to make such a move in the near future. This allowed the US dollar to demonstrate relative stability.

Brent crude oil prices rose to 84.36 in the first half of the week but later lost their positions and returned to 82 dollars per barrel. The energy resource is supported by positive expectations for demand as the travel season begins. At the same time, markets are not expecting OPEC+ to change production quotas, which is tempering optimism.


Key events of the current week

The US. Services PMI (ISM)
USD/JPY

DATE
05.06

GMT
14:00

FORECAST
51

PREV.
49.4

IMPORTANCE
High

The service sector is very important to the United States' service-oriented economy. A month earlier, the index had fallen below 50, which indicated a downturn in the industry. Global analysts forecast that the situation will improve during the reporting period, moving back to the growth zone. This is good news for the economy. Moreover, the stable state of the country's economy against the backdrop of a sufficiently high inflation rate will allow the Fed to take its time with a rate cut. This supports the dollar. In this context, USD/JPY may begin to rise again towards 158.30.    

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European Central Bank's rate decision
EUR/USD

DATE
06.06

GMT
12:15

FORECAST
4.25%

PREV.
4.5%

IMPORTANCE
High

The European economy has fully experienced the effects of rising prices, changing supply chains, and high interest rates. At the same time, it is worth noting that inflation, although falling, remains above the ECB's target level. Meanwhile, the Eurozone's largest economy, Germany, is seeing inflation rise again. However, despite this, global analysts predict that the ECB will cut its interest rate by 0.25%. Expectations of a rate cut are unfavourable for the euro. In this scenario, the EUR/USD pair could drop to 1.0735.

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The US. Non-Farm Payrolls
XAU/USD

DATE
07.06

GMT
12:30

FORECAST
151 000

PREV.
175 000

IMPORTANCE
High

The US labour market is fairly stable. Its growth rate isn't raising any cause for concern at the moment, unlike with inflation, which is not declining despite high interest rates. Unemployment remains relatively low. At the same time, the economy continues to create new jobs, although not at the same rate as before. Global analysts expect fewer new jobs to be created in May than in April, but the decline will be insignificant. Given that the US Federal Reserve looks at both inflation and the general state of the economy when making interest rate decisions, the absence of signals of a weakening economy will allow the regulator to keep interest rates high. This is favourable for the dollar but bad news for dollar-denominated assets such as gold. In this context, XAU/USD could return to around 2300.00.

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