The US Dollar saw its largest weekly decline since November 2022 as the Federal Reserve chose to keep rates unchanged. The Dollar Index this morning is trading at 102.37, which is significantly low but still higher than Friday’s lows. The bearish price movement results from consumer and producer inflation declining more than previous expectations. As a result, investors and institutions are hiding it hard to believe the guidance given by the Federal Reserve. For example, the chairman, Jerome Powell, indicates two more hikes, but will the Fed hike while inflation declines?
However, not only currencies are affected by the hiking cycle pause and rate hikes elsewhere. The US stock market paused, indicating that the cycle is nearing its end and a “soft landing” is becoming more likely. As investors continue to pump further capital into the stock market, all three US indices ended the week higher. The NASDAQ rose by almost 4%, the S&P 500 rose by 2.57%, and the Dow Jones by 1.25%. European indices also performed well, despite the European Central Bank increasing interest rates and sounding relatively hawkish.
However, investors should note that volumes will be thin throughout the day due to the US bank holiday.
GBP/USD Trading a 60-Week High
The Pound/US Dollar exchange rate ended the week 1.90% higher, and the Pound was the best-performing currency of the week. The Pound outperformed all currencies, including the Euro, Yen and Swiss Franc. The Pound saw its strongest price action against the Yen, which rose by 3.95%. The US Dollar declined against the whole currency market, except the USD/JPY, which rose 1.90%. Nonetheless, this is a much lower climb than the Pound.
However, investors are contemplating this morning if the exchange rate is trading above its actual value and if the Fed will hike another 0.50%.
The exchange rate is trading at a 60-week-high, and analysts advise traders are pricing in the Bank of England’s base rate rising to 6%. Over the weekend, the former deputy governor of the Bank of England advised that an interest rate of up to 6% is possible. However, certain institutions, such as BlackRock and Invesco, suggest rates will rise, but not to 6%. According to BlackRock, the Bank of England will continue to hike to pressure inflation and demand. However, the base rate will not reach 6% due to low economic growth and recession risks.
As a result, the exchange rate may be trading above its intrinsic value if the Federal Reverse hikes 0.50% while the BoE will be below 6%. Investors will pay attention to the UK’s inflation data tomorrow morning. If inflation is higher than expected, the chances of a 6% terminal rate will increase. Analysts expect the UK inflation rate to drop from 8.7% to 8.4%.
When looking at technical analysis, the exchange rate price has formed a symmetrical triangle in the 30-minute timeframe and a descending triangle in the 15-minute. The wave pattern indicates the price is losing momentum, and potential may include a correlation. Technical analysis is still leaning towards an upward trend in the longer term; however, the short-medium term price will also largely depend on tomorrow’s inflation data.
SNP500
The SNP500 continues to follow a bullish price trend and is trading slightly higher this morning despite the bearish price gap. The price of the SNP500 has increased in value consecutively for five weeks and has broken through previous resistance levels. Technical analysis indicates a retracement and not a further bullish impulse wave. If the price declines below the $4,408 level, the signal for a retracement may turn into a signal for a correction to $4,352.
Due to the US bank holiday, the Index will likely see weaker price movements this morning. However, tomorrow will prove to be an important day for the Fed. It will be the first time the Fed’s Chairmen will testify since his press conference. If the chairman points towards two further rate hikes, the index may come under pressure. According to analysts, the Federal Open Market Committee will not likely feel the need to halt hikes unless employment declines ultimately.
In addition, the market will be waiting for FedEx to release its earnings report. FedEx stocks have increased by 31.70% this year and 4% over the past week. Analysts are expecting the company to confirm earnings of $4.87 per share. One of the best-performing stocks on Thursday and Friday was Visa. According to a recent report from the company, Visa payments rose by 5% in the previous month, and the number of cross-border transactions by 151% in the past four years. Additionally, the total volume of cross-border trips using the services of Visa rose by almost 139%.
Summary:
- The GBP/USD ended the week 1.90% higher, and the Pound was the best-performing currency of the week.
- The US Dollar has declined to its lowest level since November 2022.
- Analysts advise traders are pricing in the Bank of England’s base rate rising to 6%. However, certain institutions point towards the exchange rate trading above its true value.
- FedEx stocks have increased by 31.70% this year and 4% over the past week. Analysts are expecting the company to confirm earnings of $4.87 per share.
