The US Dollar declined to its lowest price since May 24th and experienced its largest sell-off since April 2023. Investors are treading cautiously as the future interest rate path remains uncertain. The Federal Open Market Committee has indicated a pause next week, but global central banks are surprising markets with unexpected hikes. In addition to this, the US employment sector remains unbalanced and in favour of higher demand. So we can see here there are both elements in favour and against a possible hike.
However, all economists agree that the deciding factor may fall upon Tuesday's US Consumer Price Index. According to Bloomberg, most economists believe that if the inflation rate shows a reasonable decline, the Federal Open Market Committee will keep interest rates unchanged. However, the Fed will likely indicate further hikes even with a pause. An instant hike becomes more likely if inflation remains unchanged or increases in value. In either case, volatility is likely to increase for the Dollar, Gold and US Stocks significantly.
The US Dollar Index is experiencing the most significant declines across the currency market in the last 24 hours. The US Dollar Index declined to 103.40 but showed no further decline during the Asian Session. Nonetheless, this may change once European and US investors enter the market. The currency experiencing the most vital price action is the Pound, which positively reacts to the announced Transatlantic cooperation. Nonetheless, analysts confirm this is far short of a trade deal with the US, which the UK previously hoped for.
GBP/USD - Pound Rises Against All Currencies
The GBP/USD is increasing in value this morning, but the main gains were seen yesterday when the exchange rate rose 0.90%. This results in the exchange rate forming a bullish trend pattern similar to the Wolfe Wave Pattern. If the upward price movement continues, the asset’s next resistance levels can be at 1.2583 and 1.2677. However, if the asset forms a retracement, the Wolfe Wave Pattern indicates the support level will form around the 1.2460 mark.
This morning, the Pound is increasing in value against the Euro and US Dollar and experiencing strong gains against the Yen. However, the price movement of the Pound will largely be determined next week. The Claimant Count Change will influence the Pound on Tuesday, the Gross Domestic Product on Wednesday and the Bank of England Governor’s speech. Economic data that signals economic growth and interest rates will likely support the Pound. A GDP figure lower than 0.0% will also dip the UK economy into a technical recession, which will be unfavorable for the Pound.
The US Dollar will largely depend on Tuesday's inflation data and the Fed chairmen's forward guidance on Wednesday. Price action will indicate a decline if the exchange rate drops below 1.2543.
NASDAQ Attempts Recovery
During the latest US trading session, the index rose by 1.27%, attempting a correction. However, the price lost momentum at the previous breakout point and did not climb to the previous high. The price waves have formed a “head and shoulder” pattern indicating a potential downward price movement. However, analysts will first look for a downward momentum or pressure from interest rate developments.
Even as the NASDAQ increases in value, the stocks with the highest weight continue to struggle. Of the top 10 influential stocks within the index, only two ended the day higher. Tesla stocks performed best within the NASDAQ, increasing by more than 4.50%. This is partially in response to the news that GM will join Tesla’s EV charging network alongside Ford.
The stock market sentiment was similar across the whole US stock market. The SNP500 and Dow Jones also increased in value alongside the NASDAQ. However, investors are still cautious about a potential drop in demand and economic activity slowdown. This is due to the poor data out of China and further interest rate hikes across the global economy. However, according to most US economists, for US traders to move into a lower risk appetite band, the US economy will need to experience a higher level of Unemployment. Some FOMC members advise that the Unemployment Rate will need to rise to 4.5% to see significantly lower consumer demand.
Summary:
- The US Dollar declined to its lowest price since May 24th and experienced its largest sell-off since April 2023.
- The NASDAQ increased by 1.27% during the latest US Trading Session but has not fully corrected previous losses.
- Tesla stocks performed best within the NASDAQ, increasing by more than 4.50%. This is partially in response to the news that GM will join Tesla’s EV charging network alongside Ford.
- This morning, the Pound is increasing in value against the Euro and US Dollar and experiencing strong gains against the Yen.
