Hello everyone, welcome to the final trading session of this week! We are back in the financial markets and continuing to discuss key fundamental events that impact the dynamics of financial assets.
Economic Calendar
Today’s economic calendar features retail sales data from the UK at 6:00 GMT. Later, at 14:00 GMT, we have the University of Michigan Consumer Sentiment Index. There won’t be many releases, but we have already analyzed the most important reports and are preparing systematically for next week and the Jackson Hole symposium.
Interest Rate Forecasts
Remember, after the inflation data release and the NFP report, Jerome Powell, who leads the American regulator, should now systematize everything and provide us with a clear verdict on how the key interest rate will change by the end of this year.
Dollar Index Analysis
Let’s look at the dollar index: current quote is 10.80. Remember, all traders’ attention was focused on the inflation report. We received confirmation of disinflation: the consumer price index decreased from 3% to 2.9%, and core inflation was adjusted from 3.3% to 3.2%. This softening of the consumer price index has increased pressure on the Fed regarding the need to lower the key interest rate.
Fed Interest Rate Expectations
If we look at market expectations, we can see that the market still anticipates a 100 basis point rate cut by the end of the year. This effectively means that one of the meetings before the end of the year may see the rate cut by 50 basis points immediately.
Market Perspectives
Are there high chances that the Fed will cut the rate by 50 basis points in September? I believe it is reasonable considering the current state of the American economy. However, many believe there is no need for hasty and large-scale easing of economic policy as the economy is not in the panic conditions it was in just over a week ago.
Stock Market Dynamics
American stock indices have almost fully recovered from declines and sell-offs. Many traders argue that if recession risks are not as high, there is no need to immediately adjust the rate by 50 basis points.
Inflation and Fed Policy Forecasts
If inflation decreases steadily, then the adjustment of the key interest rate should be proportional to this decrease. The only reason that could change the mood would be a poor NFP report.
Dollar and Gold Market Analysis
The Fed may ease economic policy, which would put pressure on the US dollar. Gold remains at $1453 per ounce, and I am confident it will reach historical highs.
Currency Pair Outlook
- Euro/Dollar: current quote 1.0977, expecting a return to the 1.0 level and movement higher.
- Pound/Dollar: current quote 1.287, possible reach of the 1.30 target.
- Australian Dollar/Dollar: current quote 0.662, internal stimulus for growth due to the resilience of the national labor market.
Stock Market and Other Assets
- US Stock Market: S&P 500 has reached the target level of 5500.
- Japanese Yen: current quote 148.90, possible further decline.
- Oil Market: current quote $80.80 per barrel, forecast for further decline.
Conclusion
That’s all for now. Thank you very much for your attention, and have a good end to the week. Goodbye!
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