Week ahead: US core PCE and eurozone CPI 

David Madden, Market Analyst at Equiti Group

We heard from a range of central banks last week and the update sparked big moves in the markets, and the bulk of the volatility was in currencies.

The Federal Reserve hiked interest rates by 75-basis points, meeting expectations but the forecast was more hawkish than expected and in tun the US dollar index jumped to a fresh 20-year high, and the Dow Jones dropped to a two-month low. The bullish run on the US dollar did not last long as the Bank of Japan bought yen was a way of supporting the currency, it was the first time the BoJ had intervened in the market since 1998. Lately, the yen has been under major pressure, and it is possible the BoJ wanted to send a message to speculators that they might act again. Unsurprisingly, the yen enjoyed a major rally as short covering fuelled the rise. Major losses were seen on the Swiss franc even though the Swiss National Bank increased rates from -0.25% to 0.5%, going into the meeting there was speculation about a potential 100-basis points rise so the move disappointed in that regards. The Bank of England meet forecasts by lifting rates by 0.5% but only five of the nine policymakers backed the move so that speaks to division. 

Inflation is a hot topic these days as it has triggered a wave of interest rate hikes, and there is speculation that more monetary tightening is in the pipeline. On Friday, the US core PCE reading will be announced, the report is the Fed’s preferred measure of inflation. The latest reading was 4.6%, it lowest in nine months. The January reading was 5.3%, so that speaks to a large drop. Another measure of inflation is CPI, earlier this month US CPI cooled to 8.3% from 8.5% but economists were anticipating it to fall to 8.1%. Even though the headline CPI dipped, the core metric ticked up to 6.3% from 5.9%, and that implies that underlying demand is rising. The Fed are determined to bring down inflation and there is some evidence the demand is fading. Since March, the Fed has lifted rates by 200-basis points. Lifting rates can up the brakes on the economic activity but it can take months for hikes to trickle down through the economy. The core PCE reading could give us a clue as to the Fed’s next move. The final reading of US GDP for the second quarter will be posted on Friday. According to the advance reading, the economy contracted by 0.6%. The US economy is in a technical recession and the GDP report could be the final confirmation of that, unless it is given a big revision that puts it into positive territory. 

Last month, the European Central Bank hiked interest rates by 0.75% as the bank wants to try and keep a lid on rising inflation. CPI in the eurozone is at a record high. On Thursday, Spanish and German CPI will be revealed, and previous reports were 10.5% and 8.8% respectively. The flash CPI reading for the eurozone will be posted on Friday. The is 9.1%, which is a record high and that is a major reason as to why the ECB lifted rates by 1.25% in the past four months. Even though the ECB has begun tightening its policy, it also announced the transmission protection instrument during the summer, which is essentially a mechanism that will prevent government bond yields of from rising too quickly. Last week, the German five year-yield hit its highest mark in 11 years, and that is a sign that bond traders expect more rate hikes from the ECB. The TPI was set up to protect heavily indebted countries like Italy from having a debt crisis, so therefore the ECB cannot be overly aggressive when it comes to tightening policy. The latest UK and US CPI reports have showed slowing growth, so traders will be wondering will it be a similar situation for eurozone CPI.  

Read this next

Retail FX

Banxso announces 8.7% interest rate on deposits in South Africa

“With Banxso, they can enjoy the benefits of both worlds – earning competitive interest and having the freedom to trade, all within the same platform.”

Industry News

FINRA to publish transaction details in U.S. Treasury securities

“Consistent with our longstanding practice, FINRA is introducing greater transparency in a calibrated and careful manner, benefiting liquidity and resilience in this critical market while also mitigating potential information leakage concerns.”

Institutional FX

OpenYield launches “cheap and easy” fixed income trading for brokers

“We’re on a mission to make bonds cheap and easy to trade, and are excited about the opportunity to build generational capital markets infrastructure.”

Digital Assets

Sumsub and Mercuryo publish a guide for VASPs: “Mastering Travel Rule Compliance”

“At Sumsub, we’ve concentrated our efforts on filling the gap in understanding the complexity of Travel Rule regulation and helping organizations find the best solution to stay safe and compliant while minimizing costs and avoiding potential risks of non-compliance. This guide we created with Mercuryo, our trusted partner, is the ultimate navigation tool all VASPs can consult.”

Digital Assets

Bitget Wallet Leads with Record Swap Volume & New Crypto Innovations

This week, Bitget Wallet achieved a milestone by surpassing Metamask with a record 388,757 Swap order transactions, securing the global lead. The significant 7-day trading volume, almost 68,000 more than its rival, underscores its liquidity and user trust. This robust activity signals Bitget Wallet’s prominent role and reliability in the dynamic crypto market.

Digital Assets

Embarking on a Digital Currency Journey

Imagine you’ve stumbled upon a treasure map, leading you to untold riches hidden in the vastness of the internet. Instead of gold coins and jewel-encrusted goblets, this treasure comes in the form of digital currencies, the modern-day loot coveted by many.

Reviews

Traders Union Experts Share The Trading Analyst Review For 2024

Navigating options trading in rapidly shifting markets poses a considerable challenge. This is where options trading alert services become invaluable. They aid traders in keeping abreast of evolving opportunities and market trends. In this assessment, Traders Union experts scrutinize The Trading Analyst alert service to ascertain its efficacy. 

Digital Assets

BlockDAG’s Presale Achieves $9.9M: Aiming For A 5000-Fold ROI As Cardano’s Price Rises And Fantom Launches Sonic

Explore Cardano’s surge, Sonic’s efficiency, and why BlockDAG’s growth makes it the top crypto choice. A deep dive into the future of blockchain investments.

Digital Assets

US, UK probe $20 billion Tether transfers tied to Russian exchange.

U.S. and UK authorities are investigating the movement of $20 billion in the USD-pegged stablecoin tether (USDT) through Moscow-based exchange Garantex.

<