Federal Open Market Committee (FOMC) members continue to come out advising their stance on inflation and monetary policy. Of course, this is what investors were hoping for but opinions seem to be mixed. This is something that we will look at in more detail throughout the article. Meanwhile, price volatility continues to remain high throughout this morning’s European session and traders continue to monitor trends which have formed over the past 24 hours.
Bitcoin sees its largest decline against the US Dollar since June of this year. The price of Bitcoin has declined by over 7.40% which is still deemed significant even by Bitcoin’s standards. The stock market has also seen a strong decline outside trading hours this morning. Both have indicated that the market may potentially be switching to “risk off”. This would significantly pressure riskier investment assets such as the cryptocurrency market.
The total market capitalization for the entire cryptocurrency market has decreased to $1.048 trillion, while the share of Bitcoin was around 40%. These figures do not include futures and other derivatives. Cryptocurrency traders and holders are looking to the US market open to see how US investors may react. Investors fear that the $1,720 decline will trigger panic selling and general herd mentality.
BTC/USD 30-Minutes price chart on August 19th.
The EUR/USD seems to have caught the market’s eye as the asset again approaches that significant level known as parity. This is when the price of the Euro is equal to the US Dollar. The price of the EUR/USD has declined by 0.30% and by 1.25% over the past 2 trading days. Most economists have advised that the Euro is likely to reach parity, however, traders are also contemplating how the market is likely to react after parity. For example, will the trend be able to maintain momentum under 1.0000?
EUR/USD 4-Hour price chart on August 19th.
As no major economic events are scheduled today for the US Dollar, the market is concentrating mainly on comments made by the members of the FOMC. The FOMC is responsible for determining the US monetary policy, such as interest rate decisions.
Over the past week, the market has attempted to determine how the FOMC is likely to tackle the level of inflation going forward. Mr James Bullard has advised that he believes the Fed should still continue increasing interest rates by 75 basis points. Mrs Esther George, who is also a member, advised that the interest rate hike is under debate. Some members have also indicated a 50 basis point hike instead of 75.
So we can see here that it is not yet certain how the Fed will choose to hike next month, but nonetheless, the market has reacted positively and continues supporting the US Dollar. This may potentially be related to its safe haven status. The Central Bank also advised that inflation is still too high and there is no clear indication that prices will not rise again. Crude and Brent Oil, for example, still remain volatile and highly affected by inflation.
The US Dollar Index continues to rise and again has renewed its price highs. The US Dollar Index has reached 108.02. This is just below the index’s yearly high.
The Euro currency index is seeing mixed price movements as the currency is performing well against some currencies such as the Japanese Yen and the British Pound. However, very little positive price action can be seen against the Dollar so far. The Eurozone did not see the level of inflation decline like we did in the US. Due to this, the European Central Bank is likely to be pressured into increasing interest rates once more.
This can be deemed as positive for the currency as higher interest rates tend to increase demand. However, simultaneously the European economy is under immense pressure and some investors fear that another rate hike will push the economy into a recession. A recession will of course significantly damage investors’ confidence.
The GBP continues to remain under pressure from economic data, its political scene and again another energy crisis. As inflation has increased above 10%, which is much higher than the US and EU inflation rate, it is predicted that the Bank of England will choose to again increase interest rates.
UK Banking associations have expressed their opinions on the situation. All mortgages in the UK, which are not on a fixed rate, are likely to have seen their monthly payments increase by 30% on average. This will continue to put significant pressure on the economy, especially if inflation continues to rise. Most economists have already signaled a UK recession but many are asking how harsh it may be on employment and economic activity.
The Bank of England, along with other authorities such as the Financial Conduct Authorities, have also been put under pressure by Mrs Truss. Mrs Truss has advised that these institutions will have their powers and independence taken away if they endanger economic growth.
GBP/JPY 1-Hour price chart on August 19th.
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