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daily digest

Will Powell confirm the US Fed's sentiment? [Weekly Digest]

Tue, 06/20/2023 - 05:18

12.06.29 - 16.06.02

Results of the previous week

NG +13.52%

PA +5.00%

NQ +3.08%

CORN -3.83%

VIX -2.93%

USDCAD -1.24%

US stock indices are still trending up, with the Nasdaq rising for the eighth week in a row.  Indices are supported by the reasonable expectation that the US Federal Reserve will decide not to raise its interest rate at its June meeting. Even the fact that the regulator hinted in its comments that its monetary policy tightening might soon be aggressive couldn't change the positive sentiment.

On the foreign exchange market, the dollar is showing a mixed trend. It's rising against the yen on the back of a continued impressive rate gap since the Japanese regulator has maintained an ultra-soft monetary policy. But it's also falling against the pound and the euro. Unlike the US Federal Reserve, the ECB made another rate hike this week. The same move is expected from the Bank of England (BofE).

Brent (BRN) oil prices have reached $71.60 per barrel but, by the end of the week, recovered to $75.00. These swings are due to two contradictory factors. On the one hand, there's a monetary policy tightening by the major economies' central banks, which negatively impacts global economic growth and oil demand. On the other hand, oil-producing countries are cutting production to stabilise the price of black gold.


Key events of the current week

The UK. Inflation rate
GBPUSD

DATE
21.06

GMT
06:00

FORECAST
8.4%

PREV.
8.7%

IMPORTANCE
High

Price pressure in the UK is still quite high. The current value is four times higher than BofE's target level. The report is to be released a day before Britain's regulator meets to discuss its monetary policy. And even if the report meets forecasts and inflation drops to 8.4%, it would hardly affect the regulator's intentions on curbing price pressure. Against this background and the US Fed's recent decision not to raise interest rates, the British pound will receive support. In this scenario, we could see GBP/USD move toward 1.2930.

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Bank of England interest rate decision
XAU/USD

DATE
22.06

GMT
11:00

FORECAST
4.75%

PREV.
4.5%

IMPORTANCE
High

The BofE has hiked rates at 12 consecutive meetings. However, despite not having the most positive trends in the UK economy, the current inflation rate is forcing the regulator to continue its tightening monetary policy. According to forecasts, the Bank of England is about to make another 0.25% rate hike, which would put its interest rate at a 15-year high. Monetary policy tightening is having a negative effect on defensive assets, which is why gold (XAU/USD) will face some pressure amid the BoE's decision on a rate hike.In this scenario, it could move to 1,915.00.

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US Federal Reserve Chairman Jerome Powell's statement
USD/JPY

DATE
22.06

GMT
14:00

FORECAST
-

PREV.
-

IMPORTANCE
High

At the end of its last meeting, the US Fed decided to pause its rate hikes,  which negatively affected the dollar in the short term. Nevertheless, there were some hawkish notes in the regulator's statement accompanying the status. The Fed noted that the full effects of monetary policy tightening are yet to be felt, and some further rate hikes are likely to be appropriate this year. Almost all Fed members consider further hikes this year to be "appropriate". As such, in Powell's next speech, markets will be looking for hints of further tightening and possible timing. Comments to that effect will support the dollar. In such a scenario, USD/JPY will continue moving toward the 142.20 mark.

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