Fed Will Not Pivot From Its Monetary Policy Say Economists
2022.10.31 08:44
It is that time of the month when investors turn their attention to Central Bank interest rate decisions. The European Central Bank already released its last Thursday, where they decided to hike the rates by 75 basis points. The market expects to experience high volatility as both the Federal Reserve and Bank of England are due to release their new rates later this week.
The pound has now fully corrected its “plummet” witnessed last month, but analysts are still skeptical about the pound’s ability to maintain momentum in November and December.
Last week’s main talking point was the decline. The national currency of the US saw the strongest decline recorded since May, primarily triggered by poor US economic data, interest rate hikes elsewhere, and rumors of the Fed potentially pivoting from its policy.
The US dollar’s weakening led to a surge in the price of commodities such as but also other asset categories, including the stock market. The question now is whether the US Dollar will continue to decline. If the US Dollar attempts a correction, it can change sentiment towards these assets.
This morning, the US Dollar has slightly increased in value while the price of crude oil has risen by 1.20% due to further poor Chinese economic data and potentially from the expected rate hikes.
GBP/USD – Technical View
The GBP/USD remains in focus this week as the instrument has fully corrected, and many are now asking whether the price will reach a resistance level. The price is at a psychological level for traders, but the price condition will most likely be related to this week’s Central Bank decisions and comments.
Economists have advised that they expect a 75 basis point hike from both Central Banks but a very different outlook from the US Chairman and the UK Governor. According to economist Bilal Hafeez, the Federal Reserve will hike the rates by 0.75% but will not show any signs of pivoting and will remain hawkish for the rest of the year. The will hike by the same level but signal a slowdown. We can see here that the conference after the rate decision will also be vital for the pricing of the asset.
The BoE is more likely to take a dovish tone as the economy is at greater risk of falling into a recession. According to the UK Central Bank, the economy may shrink as much as 5% over the next year, which will significantly impact the employment sector and economic activity, wherever the US is not showing signs of imminently falling into a recession, as it has only seen poor economic figures this month.
Friday’s employment figures will also influence the currency pair this week. The US will release its latest , Figure and . The main thing investors will be monitoring is whether the US employment sector continues to slow.
Last month, the NFP figure declined to 263,000, the lowest in 9 months. This week, the figure will decline to about 200,000 or 220,000. Traders who have gone long on the US Dollar will hope the figure comes above 250,000 as a bare minimum. Even with a pressured employment sector, the Fed is unlikely to pivot just yet.
