The Fed’s inflation fight [Video]

Giles Coghlan LLB, Lth, MA Financial Source

The Fed is stuck. If it raises rates aggressively it risks sending the US into a recession. If it doesn’t raise rates it risks inflation spiraling out of control. So, this dilemma continues to worry investors as earnings are carefully picked apart for signs of slowing growth and foreboding signs of a coming US recession. The FOMC minutes provide some relief as there was no mention of a 75 bps rate hike. However, the RBNZ acted tough on inflation this week and this could set a precedent for how the Fed may have to turn even more hawkish in order to contain inflation. The ECB is pivoting more hawkishly too as Christine Lagarde announced two coming interest rate hikes for this summer.

Other key events from the past week

NZD: Interest rate decision, May 25: The RBNZ surprised markets by raising their OCR projections for September 2023 to nearly 4%. They hiked by 50 bps, as expected, to 2% on Wednesday & this sent the AUDNZD sharply lower.

GBP: UK PMI’s sink, May 24: The UK PMI data showed a severe slowing in the UK’s economic growth for May. Furthermore, demand is expected to slow further which should help pull prices lower too. The EURGBP upside bias at the start of the week accelerated on this weak PMI print.

EUR: Coming rate hikes? May 24? ECB’s Kazakhs says the ECB should not rule out a 50bps rate hike as Christine Lagarde signals a 25bps rate hike in both July & September. Has the EURUSD now reached a turning point now?

Key events for the coming week

EUR: Eurozone inflation, May 31: Will inflation data next week affirm the ECB’s need to raise interest rates more quickly. A surge in inflation above 8.1% y/y next week will increase calls for a 50 bps rate hike in July. Will that lift the EURGBP?

Seasonal trades: EURUSD surge? Will the EURUSD soar higher into June? Can a hawkish ECB lift the EURUSD higher?

CAD: Interest rate, June 01: 50 bps rate hike. The Short Term Interest Rate markets (STIR) are currently pricing in a 100% chance of a 50 bps rate hike from the BoC next week. If the BoC doesn’t deliver 50bps then the CAD should weaken.

Learn more about HYCM

Author

Giles Coghlan LLB, Lth, MA

Financial Source

Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.

EUR/USD stays defensive below 1.1900 as USD recovers

EUR/USD trades in negative territory for the third consecutive day, below 1.1900 in the European session on Thursday. A modest rebound in the US Dollar is weighing on the pair, despite an upbeat market mood. Traders keep an eye on the US weekly Initial Jobless Claims data for further trading impetus.

GBP/USD holds above 1.3600 after UK data dump

\GBP/USD moves little while holding above 1.3600 in the European session on Thursday, following the release of the UK Q4 preliminary GDP, which showed a 0.1% growth against a 0.2% increase expected. The UK industrial sector activity deteriorated in Decembert, keeping the downward pressure intact on the Pound Sterling.

Gold sticks to modest intraday losses as reduced March Fed rate cut bets underpin USD

Gold languishes near the lower end of its daily range heading into the European session on Thursday. The precious metal, however, lacks follow-through selling amid mixed cues and currently trades above the $5,050 level, well within striking distance of a nearly two-week low touched the previous day.

Cardano eyes short-term rebound as derivatives sentiment improves

Cardano (ADA) is trading at $0.257 at the time of writing on Thursday, after slipping more than 4% so far this week. Derivatives sentiment improves as ADA’s funding rates turn positive alongside rising long bets among traders.

A tale of two labour markets: Headline strength masks underlying weakness

Undoubtedly, yesterday’s delayed US January jobs report delivered a strong headline – one that surpassed most estimates. However, optimism quickly faded amid sobering benchmark revisions.

Sonic Labs’ vertical integration fuels recovery in S token

Sonic, previously Fantom (FTM), is extending its recovery trade at $0.048 at the time of writing, after rebounding by over 12% the previous day. The recovery thesis’ strengths lie in the optimism surrounding Sonic Labs’ Wednesday announcement to shift to a vertically integrated model, aimed at boosting S token utility.