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EUR/USD Weekly Forecast: To hike or not to hike? Kevin Warsh between a rock and a hard place
Developing
In Short: The odds for a US Federal Reserve interest rate hike have increased to 90% following the release of US CPI figures, as the labor market continues to show signs of full employment.
According to the CME FedWatch Tool, the probability of a 25 basis point hike by the Federal Reserve has risen to 90%, up from 72.4% the previous day, following the release of US Consumer Price Index (CPI) figures. This increase is linked to the robust job market, which Fed Chairman Kevin Warsh described as 'consistent with full employment' at the Jackson Hole economic symposium.
The European Central Bank (ECB) also raised interest rates by 25 basis points, as expected, contributing to the EUR/USD exchange rate dynamics. However, the Pound Sterling (GBP) has retreated slightly against the US Dollar (USD) due to the latest US inflation report, which aligns with Warsh's hawkish stance on inflation.
On Friday, the US Nonfarm Payrolls report for August exceeded expectations, with 162,000 jobs added, surpassing the forecast of 56,000 and outperforming July's 21,000. This strong employment data has bolstered the Fed's position that the labor market is robust, supporting the likelihood of further rate hikes.
In response to the latest economic indicators, the Federal Reserve's stance remains hawkish, with officials like Cleveland Fed's Beth Hammack emphasizing the need for rate hikes to control inflation. Money markets now assign a 61% probability of a rate increase by the Fed in September, up from 54% the previous day, reflecting the growing consensus among financial experts.
What's still developing
- The swap markets indicate that speculators expect the BoE to hike rates twice in six months.
Sources
- Fxstreetlink