Forex Market Pressure Continues as US CPI Awaited

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The Federal Open Market Committee (FOMC) met this morning at 10:00 AM EST and their actions continue the path of interest rate hikes in 2017. The Committee raised the fed funds target range for the federal funds rate as expected by 25 basis points to 1.75% to 2.00%. The committee continues to see the risks of inflation rising over the medium term, but does not yet find price pressures have reached levels that require tightening monetary policy. The federal funds rate target range remains 2.00%-2.25% to 2.50%.

The US Department of Labor and the US Bureau of Labor Statistics have released their latest CPI figures. As expected, the CPI increased by 1.5% in May from the prior month, and now stands at 2.2%.

The Bureau of Labor Statistics releases its Consumer Price Index (CPI) report tomorrow, which will be followed immediately by the Federal Reserve’s announcement of the Federal Funds rate. The Fed Funds rate is the interest rate that commercial banks charge each other for overnight loans. The Fed Funds rate, along with the fed funds target rate, is a key factor in setting the Federal Funds rate. The Federal Funds rate is currently at 0.75% and is published by the Federal Open Market Committee.. Read more about forex market today and let us know what you think.

Forex Market Pressure Continues as US CPI Awaited

  • Euro remains weaker despite bond purchases
  • Pound falls before G7 summit
  • Markets rise despite hot consumer price index

On the foreign exchange market, the world’s major currencies came under further pressure against the dollar. This indicates a resumption of US dollar strength, overshadowed by some caution from traders around the world. The euro saw a small intraday rise, but remained weak despite continued bond purchases by the ECB. The pound also remained under pressure as leaders arrived in the UK for the G7 summit which begins tomorrow. Wall Street, meanwhile, rebounded as traders processed key US consumer price index data released earlier.

PEPP unchanged with continued ECB support

The ECB announced today that interest rates will remain unchanged. The same applies to the support measures under the emergency aid programme for pandemics, which led to the net purchase of assets. They will continue into the next quarter and remain flexible to market conditions, the ECB said in a statement. This has given the euro at least a temporary boost in the currency market, although it still remains below the 1.22 level, and the return of some strength in the dollar is also playing a significant role. Other comments from the European Central Bank include that it intends to keep interest rates very low until inflation approaches its 2% target. In a statement released today, they still expect this to be the case until at least 2023.

Sterling fight continues as G7 threatens

Several factors continue to weigh on the Pound, which remains stuck around 1.41 against the Dollar at currency brokers. This includes the Delta COVID-19 option, as cases continue to be an issue. However, there are other challenges ahead as the Brexit continues to cause difficulties, particularly between the EU and the UK. All this takes place in the context of the upcoming G7 summit in the UK. This is US President Joe Biden’s first foreign trip, and he arrived in Britain with strong words to explain that for him the need to protect peace in Northern Ireland outweighs all other interests. Even when the US consumer price index data came in higher than expected, the downward trend continued.

Wall Street not paying attention to CPI growth either

A larger-than-expected rise in the core price index could have spooked markets, but that does not appear to have been the case on Wall Street, as although the core price index rose 5%, above the expected 4.7% annualized rate, the very strong momentum appears to be holding. All major indices started the day higher. The Dow Jones jumped up more than 150 points. All three major indices remain close to new all-time highs, with the S&P 500 closest to that mark. Concerns about inflation, while still present, seem to have been put on hold, at least for now.As the U.S. economy struggles, the US Federal Reserve is becoming increasingly concerned with price pressures in the economy.  As a result, Fed members are raising expectations for future interest rate hikes, with two hikes expected in 2018.  However, a few members are concerned that such a policy might not be enough to combat labor market slack.  A weaker dollar and higher oil prices are providing some support for inflation, but concerns remain that the economy is still in a period of low growth and low inflation.  In this week’s article, I will explain one of the key tools that the Fed uses to measure inflation and inflation expectations and what it says about the state of the economy.. Read more about cpi data release and let us know what you think.

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Emilia James
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