Fed will be tough on incoming economic data (EUR/USD and USD/CAD are likely to see limited gains)
February 23, 2023 10:23 am
Markets remain under strong pressure due to expectations of higher Fed interest rates. The released Fed protocol did not show any discrepancies with the resolution that was issued following the last meeting, indicating an almost unanimous decision from the members to raise the key interest rate by 0.25%. It also mentioned that the bank is prepared to continue fighting inflation, which means that if the figure continued to decelerate, interest rates will continue to be raised until it falls to 2%.
Such a content could not please market players, but there is one phrase in the minutes that kept the US financial market from continuing its heavy fall. According to the document, inflation seems to have reached its maximum value, so the US equity market closed with mixed dynamics after a very volatile trading session. This indicates that the market assumes that the Fed is likely to act according to circumstances, not hike rates for the sake of mindless pressure on inflation.
In fact, if they wanted to, the Fed could have immediately raised rates by 5%. However, the bank wants to bring inflation down to 2% without harming the economy. Markets understand this, which is why there was a prolonged period of consolidation in US stock indices and a halt in dollar.
Now, the Fed will act according to incoming economic data, so tomorrow’s release of core PCE and US income and expenditures will certainly be taken into consideration. If those show growth, the central bank will continue its rate hike cycle, while markets will resume selling risky assets and government bonds. This will push yields up and support dollar.
But if the figures show inflation stagnating or falling slightly in line with expectations, markets will stay afloat and a prolonged period of consolidation should be expected before the release of US inflation data for February.
Forecasts for today:
EUR/USD
The pair remains under pressure as risk appetite continues to deteriorate due to increasing expectations of further aggressive Fed policy. However, the pair may get some support today if eurozone inflation data shows an increase. The quote may rise to 1.0655, but then resume falling to 1.0575, as the pressure of dollar remains quite strong.
USD/CAD
The pair is trading above 1.3510. Another decline in oil prices, as well as pressure from dollar, could push the quote to 1.3670.
The material has been provided by InstaForex Company – www.instaforex.com
Markets remain under strong pressure due to expectations of higher Fed interest rates. The released Fed protocol did not show any discrepancies with the resolution that was issued following the last meeting, indicating an almost unanimous decision from the members to raise the key interest rate by 0.25%. It also mentioned that the bank is prepared to continue fighting inflation, which means that if the figure continued to decelerate, interest rates will continue to be raised until it falls to 2%.
Such a content could not please market players, but there is one phrase in the minutes that kept the US financial market from continuing its heavy fall. According to the document, inflation seems to have reached its maximum value, so the US equity market closed with mixed dynamics after a very volatile trading session. This indicates that the market assumes that the Fed is likely to act according to circumstances, not hike rates for the sake of mindless pressure on inflation.
In fact, if they wanted to, the Fed could have immediately raised rates by 5%. However, the bank wants to bring inflation down to 2% without harming the economy. Markets understand this, which is why there was a prolonged period of consolidation in US stock indices and a halt in dollar.
Now, the Fed will act according to incoming economic data, so tomorrow’s release of core PCE and US income and expenditures will certainly be taken into consideration. If those show growth, the central bank will continue its rate hike cycle, while markets will resume selling risky assets and government bonds. This will push yields up and support dollar.
But if the figures show inflation stagnating or falling slightly in line with expectations, markets will stay afloat and a prolonged period of consolidation should be expected before the release of US inflation data for February.
Forecasts for today:
EUR/USD
The pair remains under pressure as risk appetite continues to deteriorate due to increasing expectations of further aggressive Fed policy. However, the pair may get some support today if eurozone inflation data shows an increase. The quote may rise to 1.0655, but then resume falling to 1.0575, as the pressure of dollar remains quite strong.
USD/CAD
The pair is trading above 1.3510. Another decline in oil prices, as well as pressure from dollar, could push the quote to 1.3670.
The material has been provided by InstaForex Company – www.instaforex.com
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