Forex Weekly Analysis on the USD, AUD and GBP
Posted by FreeWithForex on June 26, 2023
- The main priority is the US PCE data scheduled Friday - at least one or two more rate hikes this year
- Outlook on the US Dollar and What to Expect
- The Australian Dollar is ranging after falling downwards
- The US Dollar recovered its influence on the aggressive Fed tone
The USD Outlook
The US dollar is presently in a range, and it could remain like this till Friday pending the release of the key US PCE price index data on Friday.
The Chicago Fed President Austan Goolsbee at Wall Street Journal, stated that the central bank is standing off while awaiting further data release. The US Federal Reserve concentrating on the economic ruse activity and inflation data is yet to be released.
Earlier last week, at Capitol Hill, Powell restated that there might be a need to increase interest rates. During the hearing at the Senate Banking Committee on Thursday he assured that the increase of interest will be at a careful pace. Stating that they are much closer to their target.
Powell added that the reason behind balancing the interest rates is to checkmate the speed at which the Fed is increasing the cost of borrowing. On Thursday, Governor Michelle Bowman also chipped in that additional rate hikes are needed, at least two or more hikes are required.
The Core PCE price index is at 4.7%, indicating a flat price. Currencies are left in tight ranges as the PCE price index was predicted to hit 3.8% in May from 4.4% in April, rather it recorded 4.7%.
The Australian Dollar Outlook
The Australian Dollar trended downward last week, after hitting an all-time high 4 months ago. This is coming after the Federal Reserve began a more aggressive rate hike, at a time when the domestic interest rate was not anticipating a hike. The hope of the next RBA monetary policy meeting leading to tightening in rates is low. The target is to hit a 4.6% cash rate and 50 basis points.
However, many central banks are insisting that further decisions should be made based on the data released. Australia's second quarter CPI will be released on July 26th, this will give hints on the purpose of the RBA's meeting in August.
Jerome Powell, the Federal Reserve Chair will be part of the panel on Central Banking at the European Central Bank (ECB) Forum.
Philip Lowe, the RBA governor has provided methods which will see to tightening prices while sustaining economic growth. If his plan succeeds, the bond market has predicted a high rate of success with this plan.
This week, the markets might be affected by geopolitics, which is the evolving crisis in Russia. If sentiment increases, AUD/USD might be weak and bearish.
GBP/USD (Great British Pound/US Dollar)
GBP/USD plunged to 1.2700 after hitting a high of 1.2842 after the BoE announcement. Price is predicted to move down to the short-term support line of 1.2667.
While the central bank increased its fight against inflation, the Bank of England increased rates by more than the predicted 50 basis points.
Coupled with the rate hikes surpassing the predicted amount, the market was still shocked by the BoE's aggressive talks on rate increases. It was predicted that inflation was going to reduce by mid-year in the UK, however, that is yet to happen. Rather a price pressure keeps increasing drastically.
Under normal cases, GBP would be strengthened by higher rates as the currency gains against its peers. However, that is not the case, and an impending recession is on the way. 2 - 5 years fixed mortgage rates have increased since the BoE commenced increasing rates. Rates are expected to increase further in the coming months, this will surely affect the UK economy.
The UK gilt yields indicate the recent issues pointing towards a recession. The US 2 - 10 years gain is now upside down by 85 basis points, while the 1 - 10 year yield is also upside down by over 100 basis points. This upside-down yield curve shows a strong recessionary indication.
The domestic economic calendar slated for release next week comprises two data traders are looking forward to. The recent perk at mortgage approvals will reveal how the housing market is faring with higher rates. The second data is the UK Q1 GDP which will show the economy scratching out the tiniest increase in the first quarter.
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