1. Home
  2. Live Market Analysis
  3. Increased inflation and a potential 1% rate hike triggers US Dollar Strength
Increased inflation and a potential 1% rate hike triggers US Dollar Strength
14.07.2022

Over the past 16 hours, the US Dollar has seen volatility levels increase to over 125 PIPs as a large number of traders entered new positions based on the latest inflation figures. Since the release of June’s Consumer Price Index, the market has also been influenced by a potentially more restrictive Federal Reserve and the risk of recession which has reached a new high.

The price movement of the EUR/USD witnessed both bullish and bearish price movements after the CPI figures were released. The EUR/USD significantly moved in favor of the US Dollar but soon after lost momentum, before correcting back in favor of the Euro. The correction was not necessarily triggered by negative fundamentals but may have been due to traders cashing out profit after such a strong and quick downward movement. After the price corrected to 1.0121, the US Dollar again gained control of the market and moved back downwards.

EURUSD - 14.07.2022.jpg

The USD/JPY, on the other hand, is seeing even stronger domination of the US Dollar as it continues to gain against the Yen. The price of the US Dollar has increased by over 1% within the last 3 hours. The exchange rate has once again climbed to new highs. Similarly, the US Dollar Index has increased by 0.51% today and also recorded a new price high for 2022.

USDJPY - 14.07.2022.jpg

So, we can see here that the US Dollar is gaining momentum and still remains in demand. So what is influencing traders to opt for the Dollar?

Firstly of course we have the Consumer Price Index which was released yesterday afternoon. The CPI was confirmed as 1.3% which is 0.3% higher than the previous month and 0.2% higher than what was predicted by the market. This brought the US inflation rate to 9.1% and is bringing the US economy closer to double digit inflation.

Of course, the high level of inflation is a concern for economists and increases the risks of a recession. And although recession risks are currently applicable to pretty much all economies, the Federal Reserve is currently the most hawkish. Previously it was believed that the Fed may increase interest rates by 50 or 75 basis points. The FOMC was split between some members opting for 75 basis points, others for 50, and others, such as the Chairman, preferred to wait for the latest inflation figures. However, now there is even talks of the Fed potentially considering a 1% rate hike which is something rare in western economics. Though this cannot yet be confirmed, it has without a doubt lingered in traders' minds.

In addition to the potentially more restrictive Federal Reserve, the market is also being influenced by the reported increased risk of seeing a recession in the autumn or winter months. The 10 Year 2 Year Spread, also known as the USYC2Y10, has been significantly declining over the past few months which is partially why economists have projected a recession. The index, which normally is the forerunner before a recessionary period, has recently declined to below 0. Yesterday, the USYC2Y10 declined again to levels not witnessed since 2000.

The fear of a recession has once again sparked further demand for the safe haven currency. This can also be seen when looking at global stock markets and the cryptocurrency market. This morning, both European and US stock futures are down as are most cryptocurrencies.

When analyzing the charts and the US Dollar index, it is clear that the USD continues to make strong advances. Markets will continue to evaluate the economic figures which are scheduled to be released this afternoon and tomorrow. But in addition to this, traders will, of course, be paying close attention to the reaction of members of the Federal Open Market Committee.

IMPORTANT NOTICE: Any news, opinions, research, analyses, prices or other information contained in this article are provided as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and therefore, it is not subject to any prohibition on dealing ahead of dissemination. Past performance is not an indication of possible future performance. Any action you take upon the information in this article is strictly at your own risk, and we will not be liable for any losses and damages in connection with the use of this article.
RISK WARNING: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. A high percentage of retail client investors lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Copyright © 2022 – All rights reserved.

NAGA is a trademark of The NAGA Group AG, a German based FinTech company publicly listed on the Frankfurt Stock Exchange | WKN: A161NR | ISIN: DE000A161NR7.

Any trademarks appearing on this website are the property of their respective owners.

The NAGA Group AG is the holding company of various companies, such as NAGA GLOBAL LLC, NAGA MARKETS EUROPE LTD, NAGA Technology GmbH, NAGA Pay GmbH and has a close link with NAGAX Europe OÜ.

RISK WARNING: Derivatives are complex instruments and come with a high risk of losing money rapidly due to leverage. A high percentage of retail investor accounts lose money when trading derivatives with this provider. You should consider whether you understand how derivatives work and whether you can afford to take the high risk of losing your money.

Trading with NAGA Trader by following and/or copying or replicating the trades of other traders involves high levels of risks, even when following and/or copying or replicating the top-performing traders. Such risks include the risk that you may be following/copying the trading decisions of possibly inexperienced/unprofessional traders, or traders whose ultimate purpose or intention, or financial status may differ from yours. Before making an investment decision, you should rely on your own assessment of the person making the trading decisions and the terms of all the legal documentation.

Restricted countries: NAGA Group AG does not provide services for the residents of certain countries, such as Afghanistan, Albania, American Samoa, Australia, Barbados, Belgium, British Virgin Islands, Burkina Faso, Cambodia, Canada (including Quebec), Cayman Islands, Central African Republic, Congo, Democratic People's Republic of Korea, Democratic Republic of the Congo, Gibraltar, Guam, Haiti, Iran, Iraq, Isle of Man, Israel, Jamaica, Jordan, Libyan Arab Jamahiriya, Mali, Monaco, Morocco, Myanmar, Nicaragua, Philippines, Russian Federation, San Marino, Senegal, Serbia, Somalia, South Sudan, Sri Lanka, Syrian Arab Republic, Trinidad and Tobago, Tunisia, Turkey, Uganda, Ukraine, United Kingdom, US Minor Islands, US Virgin Islands, USA, Vanuatu, Yemen, Zimbabwe.

Member of NAGA Group AG that is publicly listed in Frankfurt Stock Exchange.
close icon
By using this website, you agree to our cookie policy