- Investors buy USD dips
- The Fed will likely hike interest rates next week.
- USD soars despite rate increases by ECB and RBA.
The trading week is yet to close, and anything can emerge in the following hours throughout the day. However, resilience of the dollar index (DXY) (this week) is hard to ignore. Currency market participants should beware that the market has priced in all data that could disrupt the space. After all, this’s what market efficiency is all about. This week proved such narratives with two instances.
First and foremost, it was Tuesday’s RBA (Reserve Bank of Australia) monetary decision. The bank exceeded expectations as it hiked fund rates by 50 basis points, whereas market players anticipated a 25bp uptick. Therefore, anyone that could have predicted the 50bp bet on AUD could have enjoyed massive returns. Only it didn’t. The Australian dollar surrendered all acquired gains (and more) following the swift & short-lived upswing.
Secondly, the ECB declared the ending of its easy financial policy yesterday. Again the short-lived surge saw the euro giving up its gains after the European Central Bank’s decision. Indeed, one can evaluate monetary policy statements by the two banks for potential reasons for swift reversals. Nevertheless, the Forex market always emphasizes upcoming events.
What next for the marketplace? Today it’s the United States’ inflation or CPI release. Then, there’s the crucial Fed Reserve meeting on Wednesday next week.
USD Gained Despite Hawkish ECB and RBA
Rates decision in the United States matters most to investors as the USD remains the leading reserve currency globally. And that included Forex players and anyone interacting with the financial space.
For now, the market expects another 50bp rate high by Fed Reserve next Wednesday. The bank will maintain such a stance at the following meetings. Moreover, Fed will continue hiking rates until inflation eases. Today’s CPI will reveal whether inflation is cooling down.
Considering USD resilience, the market is unconvinced inflation peaked. Thus, a higher CPI today than expected might trigger another uptick in USD. Why so? Fed won’t rest until achieving impressive outcomes.
The Dollar index’s rebound from a horizontal foothold (this week) indicates investors’ uncertainty about the US inflation peak. The Dollar index will witness further highs if market players are correct as far as inflation is concerned. The CPI data today will reveal a clearer picture.