The forex market is currently in its worst period in decades. Prices of other currencies are falling against the US dollar due to an increased rate of inflation that has caused the Fed to persist in hiking its interest rate. Europe and the UK have not matched the pace of their interest rate hike with those of the US economy and have vastly discounted the exchange rate of the Euro and Pounds.
EURUSD has fallen past its lowest point in twenty years, with prices creating a new low during the Asian session today at $1.0037. The European economy is undoubtedly at the edge of falling into a recession due to the high rate of inflation coming from the energy sector. The energy cost has risen significantly in Europe, especially with Russia’s closure of the Nordstrom 1 gas pipeline for short maintenance. Bedevilled by the menace of high inflation, EURUSD remained on a downward trend with the US dollar at the brink of overtaking the Euro in price value which many analysts foresee as coming sooner.
The UK economy is not left out of the scene. Pounds have fallen to their lowest exchange rate in decades, with the price exchanging at $1.186 currently.
Held down by the inflation disaster, the UK retail sales rate has fallen at high speed, not seen before, not even during the pandemic crisis. Consumers have cut down on their expenditures, and the sales rate dropped drastically. Prices of goods and services are currently at their highest levels in 40 years. The inflation rate hit 9.1% in May.
The Asian sector has not been spared either. The growing fears of an imminent recession and possible lockdown worries arising from the spread of the COVID-19 variant in some parts of China, especially Shanghai, have slowed down economic growth taking the AUDUSD to its lowest point in twenty-six months at $0.6713. Investors look forth to the Employment Change report to be released tomorrow to determine the following support for this pair.
US policymakers have tried to push away the effects of this inflation from their economy through aggressive interest rate hikes since April, but this does not seem to be the solution. The dollar’s value against other currencies has increased, but inflation has persisted.
A critical macroeconomic report that will expose the progress made by the US in fighting inflation is the US Consumer Price Index (CPI) report to be released today. The CPI shows the price of goods and services purchased by the consumers. This report, no doubt, is one of the most accurate ways of measuring inflations.
The US YoY inflation rate rose to 6.8% in June against 6.6% in May. Currently, the market is anticipating a slowdown in the inflation rate; at least in the US, robust employment data were given last Friday. The Nonfarm Payroll unemployment change was given as 372K for June, much higher than the market expectation of 268K. Though lower than the previous record provided at 384K. The unemployment rate remained stable at 3.6%. Amidst the growing inflation rate, there seems to be no improvement in the average hourly earnings, which fell to 5.1% from the previous record of 5.3%.
The CPI data is to be released today, which will determine if the Fed will once more proceed with its aggressive interest rate hike in July.
The current forecast for the CPI is 1.1% MoM, and the previous record for this data is 1.0%.
What impact will the CPI data today have on EURUSD and GBPUSD?
Investors often predicted the market without waiting to be taken unawares. This could explain the cause of the sudden fall in EURUSD and GBPUSD during the Asian session today. Investors fear witnessing an increased inflation rate from the CPI data released today. As stated by the Fed during their last session, a further increase in the inflation rate will force them to embark on another 75-basis point hike in July. Thus, the expected impact of a higher reading from the CPI report today would be a massive downward trend for EURUSD and GBPUSD.
