Market Focus: Market Attention on Inflation Data Following Volatile Fed Rate and US Jobs Reports

　　

What happened in the market last week?

• Global financial markets experienced a lot of activity with central banks taking center stage.
• The Reserve Bank of Australia (RBA), the US Federal Reserve, and the European Central Bank (ECB) announced interest rate hikes causing investors to feel uncertain.
• The RBA increased the cash rate by 25 basis points to 3.85%, which was unexpected but meant to control inflationary pressures while maintaining economic growth.
• The Fed raised interest rates from 5% to 5.25% due to a strong labour market and inflationary pressures, which could support the US Dollar in the short term.
• The ECB increased interest rates by 25 basis points to 3.75% to manage inflationary pressures and support the Eurozone’s economic recovery.
• The US labour market demonstrated strength, with the Non-Farm Payrolls report exceeding expectations at 253k, showing a resilient economy and justifying the Fed’s interest rate hike.
• Average hourly wages in the US also increased, indicating wage gains and potentially leading to more consumer spending and economic growth.

Last Week Market Pair Changes (All data is taken from the MT4 VT Markets)

On Friday, the DXY was able to recover from its earlier low point as the bears were unable to retest or breach the support level of 101.00. However, the USD index was still facing downward pressure despite a bullish move on Thursday. 

• USOUSD decreased by 1.5%, posting a third straight weekly fall on economic woes.
• EURUSD decreased by 0.04%, while GBPUSD increased by 0.62%.
• XAUUSD increased by 1.29%.
• US stocks were down as earnings reports from regional banks created fear in the banking sector, resulting in a 1.38% decrease in the DJ30 and a 0.03% decrease in the NAS100.
• USDJPY dropped by 0.94%.

What to focus on this week?

This week, highly anticipated economic reports are set to be released, including the Bank of England Rate Statement, US Consumer Price Index, and Producer Price Index. These reports are vital, providing traders and investors with informed decision-making data and ensuring they stay ahead of the dynamic market.

Consumer Price Index | US (May 10)

CPI in the US rose by 0.1% in March 2023, showcasing a slowdown in increment from February’s 0.4% increase.

According to analysts, the CPI reading for April is expected to rise by 0.3%.

Takeaway: Following the negative market reaction to the Fed rate decision, the market will now be closely watching the Consumer Price Index (CPI). If the results align with the forecast, we can anticipate a slight boost in the US dollar.

Bank of England Rate Statement | UK (May 11)

During its March 2023 meeting, the BoE raised its key bank rate by 25bps to 4.25%, with the objective of bringing inflation back to the 2% target. 

Some analysts expect the next rate hike will be by another 25bps to 4.50%.

Takeaway: Based on last month’s hawkish inflation and wage data, the BoE is expected to implement another 25 basis-point rate hike. However, due to recent comments by the bank on the delayed impact of prior tightening measures, the criteria for further actions have increased. Unless there is negative economic news in the next few weeks, we predict that there will be a pause in June.

Producer Price Index | US (May 11)

Producer prices for final demand in the US decreased by 0.5% month-on-month in March 2023, the largest drop since April 2020. 

An increase of 0.3% is expected for April. 

Takeaway: Following the negative reaction of the market to the Fed rate decision, the focus now shifts to the Producer Price Index (PPI). If the result aligns with the forecast, we can anticipate a slight boost for the US dollar.

Gross Domestic Product | UK (May 12)

The UK economy experienced a halt in February 2023, after achieving an upwardly revised growth of 0.4% in January. 

For March, the country’s GDP is expected to expand by 0.1%. 

Takeaway: The Bank of England will rely on the latest UK GDP figures to help determine their next interest rate decision. The release of this data, if it’s in line with expectations, could potentially slow down the GBPUSD exchange rate. However, it could also signal the central bank to keep the interest rate unchanged in the next meeting.

Prelim University of Michigan Consumer Sentiment | US (May 12)

The University of Michigan’s US consumer sentiment came in at 63.5 in April 2023, up from 62 in March.

For May, analysts expect a reading of 64. 

Takeaway: The market closely watches consumer sentiment as it serves as an indicator of the public mood in the US. If the data release meets the forecast, we may see a boost for the US dollar.