The UK economy, which supposedly is at the highest risk of a recession, shocks investors with the strongest Claimant Claims figure in 7 months. However, market participants are more focused on whether the US Inflation figures will also surprise investors. Traders are expecting high volatility and strong price movement throughout the day.
The US inflation rate is expected to decline from 6.5% to 6.2%, which may seem positive, but the Consumer Price Index is expected to read 0.5%. A 0.5% reading will be the highest monthly CPI figure released since July 2022. Most economists advise that if the figure comes in higher than 0.5%, the Federal Reserve will likely take a more restrictive approach.
So what does a more restrictive approach mean for the monetary policy? The Federal Reserve has 2 possible options. The Central Bank may choose to hike 0.50% instead of 0.25% or stick with the previous 0.25% hike but hike for more months than expected. Before the latest employment figures, the Federal Reserve was expected to hike one last time before breaking. What does this mean for the US Dollar and US Equities? Find out below.
GBP/USD - UK shocks with strong Claims figure
The GBP/USD started the week with a strong bullish movement favoring the Pound. The price movement is being influenced by the Pound's increasing in value against most competitors and the US Dollar, which is experiencing a decline. The US Dollar’s decline is natural as many investors will look to avoid the asset before confirmation from the Consumer Price Index this afternoon.
When looking at technical analysis, the exchange rate forms a symmetrical triangle pattern. A symmetrical triangle pattern indicates a lack of direction in the longer term. This means investors should be cautious of a change in direction and concentrate on short-term trades. Currently, trend indicators such as the Bollinger Bands and Moving Averages indicate a bullish price movement in short to medium term.
However, investors should be cautious that the price is close to the previous resistance level at 1.21930. This level formed a price where the asset previously collapsed due to selling pressures. Investors should note that the price will also largely depend on this afternoon’s CPI announcement. So far this morning, the price is moving in favor of the Pound, specifically after the UK’s Claimant Claims for January.
The UK’s Claimant Claims Change shows the change in the number of individuals claiming unemployment benefits from the UK government. The last 6-month average has been 12,465, and this month was expected to read +18,000. This means 18,000 more people applied for unemployment benefits. However, the data showed that the number of UK citizens claiming benefits actually declined by 12,900. This is positive for the UK and resulted in the GBP/USD increasing by 0.38%.
SNP500 - Investors Fixed on Today’s CPI Release
Investors should also note that the CPI announcement will influence not only traders’ decisions on the Dollar but also the US stock market. The US stock market, including the SNP500, will experience increased volatility, especially after the figures for January are released.
The SNP500 over the past 12 days has been declining within a downward trend but has still shown signs of strong bullish price movement. The price over the past 24 hours has increased but has yet to increase above the previous swing high. Therefore, the price may technically still be within a downward trend until the price crosses the $4,159 level.
What do economists believe is likely to be released? Most economists, according to Bloomberg, believe the CPI figure will be 0.5% or higher. A figure above 0.5-0.6% would specifically be negative for the SNP500. Economists believe the figure may rise as the employment sector remains unbalanced and a rise in fuel prices. However, this can only be certain once the Bureau of Labor Statistics releases the confirmed figures.
Investors looking to buy further or trade long will hope the CPI figure comes lower than 0.5%. In addition, tomorrow’s Retail Sales and Core Retail Sales figures will likely influence the SNP500. The Retail Sales figure is expected to show 1.9%.
Summary:
- UK shocks with better than expected employment figures for January. The price of the Pound has increased for a second consecutive day.
- The Dollar and US stocks are expected to increase in volatility due to this afternoon’s CPI release.
- Economists expect the Consumer Price Index to read a minimum of 0.5%, the highest since the summer.
- The US stock market gains but still trades below the previous swing high.
