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Major Currency Pairs - US Dollar Hits Monthly High
14.06.2022

Over the past three trading days, the US Dollar has taken control of the wheel and strongly influenced all major currency pairs. The US Dollar has not only seen 3 days of consecutive increases, but also a strong trend with high momentum and little retracements. The strong price movement with little opposition clearly shows the reaction of the large majority of the market participants.

Most major currency pairs are currently showing strong volatility with the US Dollar increasing at pace, and the lack of retracements have enabled traders to place positions more easily so far.

The EUR/USD pair declined by over 310 PIPs and almost 3%. The currency pair is slightly increasing but still remains low this morning . The GBP/USD is seeing a similar price trend with a slight retracement forming this morning. The US Dollar Index actually rose to a new 12-month price high and is currently at 104.98.

EURUSD - 14.06.2022.jpg

Is Inflation out of the Fed's control?

The price movement over the past three days has largely been driven by the unexpected Consumer Price Index for May which was much higher than expected. The inflation rate increased by 1% during the month of May, which exceeded the 0.7% predictions made by analysts. May’s CPI figure saw the inflation rate for 2022 increase to 8.6%. It should be noted that this is the highest inflation level of the year yet.

This higher level of inflation has confirmed that demand remains high and consumers are continuing to purchase goods and services while the supply remains unchanged. While the US employment sector remains strong and inflation continues to increase, it is predicted that the Federal Reserve is likely to remain hawkish in the longer term and even consider accelerating rate hikes.

As interest rates continue to increase the demand for the US Dollar and US Dollar accounts continue to rise. The market is anticipating this week’s conference held by the Fed, the new Fund Rate which is predicted to increase by 50 basis points and the Monetary Policy Statement. These events are likely to shed more light on how the Fed views inflation and interest rates over the next 6 months.

The Safe Haven Dollar

The US Dollar and major currency pairs also continue to be influenced by the safe haven status of the US Dollar. Over the past week, we have witnessed a strong “risk off” market not only in the equity and bond market but also with cryptocurrencies.

The low risk appetite and sentiment amongst investors have been triggered by the increased chance of higher interest rates as well as recession towards the end of the year. In addition to this the market has also negatively reacted to the raw material and food shortages.

Looking at the US stock market over the past week we can see the SNP500 has declined by 8.47%, NASDAQ by 9.38% and the DowJones by 6.91%. Looking at other regions we can see the DAX has declined by 7.84%, the FTSE by 5.29% and NIKKEI225 by 5.23%.

The cryptocurrency market, which is also strongly influenced by risk appetite, has also declined. Bitcoin has declined by 23% over the past week and by 48% this year. Currently, participants have turned to the US Dollar to safeguard their capital. It is partially for this reason that the US Dollar has increased in value, though traders are required to continue monitoring new price data and developments.

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As previously mentioned, the market will now be turning towards this week’s economic releases and the Fed’s scheduled events. Today, the US will release the national Purchase Price Index and tomorrow the monthly sales figures will be confirmed. However, this week’s main events are likely to be related to the Central Bank such as projections, conferences, statements and the new Fund Rate. all are scheduled to be released tomorrow afternoon.

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