The previous week was rich in all sorts of events and economic statistics, which increased uncertainty in markets. First of all, there was the decision of the Federal Reserve regarding its monetary policy, which continued to be hawkish, as perceived from Jerome Powell's speech. The Fed chief once again broke expectations that the bank would begin to gradually ease the rate hikes in order to analyze its impact on the national economy. Another highlight was the data from the US labor market, which showed a steady increase in the number of new jobs at 261,000 in October against the forecast of 200,000. All these were very important as investors are monitoring the monetary policy in the US. They are trying to understand how the Fed will act in the near future, more specifically if the bank will continue its aggressive cycle of raising interest rates or not. The former will signal if rates will rise above 5%.
This week, the data on US inflation will come out, which is expected to be 0.7% higher in October, against the September growth of 0.4%. Its year-on-year value, however, will correct from 8.2% to 8.0%. If the report coincides with expectations or come out higher, the Fed will continue its aggressive rate increase, which will push the value above 5%. This will keep markets bearish. But if the figure indicates a slowdown in the growth of consumer prices, stocks will rise, while dollar will weaken.
Also ahead is the result of the midterm elections in the US. It is assumed that the unconditional victory of Republicans will change not only the current political course, but also the economic one. Even so, it is difficult to say how this will affect markets, so be cautious when trading.
Summing this all up, negative sentiment prevails among Fed members and the market as a whole, which can put pressure on stocks, while raising up dollar. Investors are obviously not convinced that inflationary pressure in the US will end by the end of year, or show even a small but steady decline. In this situation, dollar may once again put pressure on major currencies, while treasury yields will resume growth.
Forecasts for today:
AUD/USD
The pair shows weakening growth, influenced by the weak data on exports and imports, as well as the trade surplus in China. The Australian economy is closely linked to Chinese imports and if market sentiment is generally negative today, the pair could drop to 0.6290 after breaking 0.6400.
GBP/USD
The pair is trading above 1.1270. Deterioration of market sentiment ahead of the congressional election result in the US, as well as caution before the publication of inflation data, may put strong pressure on the pair. A price drop below 1.1270 will only exacerbate this likely fall.