Key Points:
The upcoming US inflation report is expected to play a key role in shaping the value of the USD and guiding perceptions of next moves by the Federal Reserve. Over the past months, the dollar has enjoyed a rally, driven primarily by a shift in expectations towards a less accommodative monetary policy by the US Federal Reserve. This perception is supported by the markets projecting fewer than two rate cuts in 2024.
However, this uptrend in the dollar has recently lost some steam. A series of economic reports — slightly weaker payroll numbers, Purchasing Managers’ Index (PMI) surveys, and the latest jobless claims — suggest a softening in the economic backdrop.
The jobless claims, though influenced by seasonal factors, together with other data, paint a picture that the US economy might not be as robust as previously perceived.
At the same time, the weakening of USD is also further supported by a comparison to its global counterparts. A recent dovish stance by the Bank of England suggests a growing market inclination towards betting against the USD.
Additionally, the US data slowdown coincides with positions heavily favoring the dollar (dollar net longs) have become crowded – or typically called as an “overbought” situation spoken among traders. This could imply that the market is overly optimistic about the strength of the USD, leaving it vulnerable to a correction should economic indicators continue to disappoint.
Chair Jerome Powell of the Federal Reserve recently indicated a potential halt to rate hikes during the May policy meeting. This pivot introduces a new dynamic into the market, setting the stage for a possible recalibration of interest rate expectations.
Should the upcoming Consumer Price Index (CPI) report come below expectations or barely meet them, the market might begin to anticipate rate cuts. Conversely, a higher-than-expected CPI could validate the current hawkish outlook, albeit temporarily.
Traders should closely monitor the CPI data release, as it will provide vital clues about the short-term direction of the USD and potentially form a critical part of any currency pairs involving the USD.
Education
Company
FAQ
Promotion
Risk Warning: Trading CFDs carries a high level of risk and may not be suitable for all investors. Leverage in CFD trading can magnify gains and losses, potentially exceeding your original capital. It’s crucial to fully understand and acknowledge the associated risks before trading CFDs. Consider your financial situation, investment goals, and risk tolerance before making trading decisions. Past performance is not indicative of future results. Refer to our legal documents for a comprehensive understanding of CFD trading risks.
The information on this website is general and doesn’t account for your individual goals, financial situation, or needs. VT Markets cannot be held liable for the relevance, accuracy, timeliness, or completeness of any website information.
Our services and information on this website are not provided to residents of certain countries, including the United States, Singapore, Russia, and jurisdictions listed on the FATF and global sanctions lists. They are not intended for distribution or use in any location where such distribution or use would contravene local law or regulation.
VT Markets is a brand name with multiple entities authorised and registered in various jurisdictions.
· VT Global Pty Ltd is authorised and regulated by the Australian Securities & Investments Commission (ASIC) under licence number 516246.
· VT Global is not an issuer or market maker of derivatives and is only allowed to provide services to wholesale clients.
· VT Markets (Pty) Ltd is an authorised Financial Service Provider (FSP) registered and regulated by the Financial Sector Conduct Authority (FSCA) of South Africa under license number 50865.
· VT Markets Limited is an investment dealer authorised and regulated by the Mauritius Financial Services Commission (FSC) under license number GB23202269.
· VTMarkets Ltd, registered in the Republic of Cyprus with registration number HE436466 and registered address at Archbishop Makarios III, 160, Floor 1, 3026, Limassol, Cyprus.
Copyright © 2024 VT Markets.