Inflation fear rising as US dollar, yields move higher
Key points
- FOMC, Powell "need greater confidence" on inflation
- Treasury yields near 5.0%
- US dollar surging on higher rates, flight to quality
- Inflation can move higher
- Interest rate cuts less likely in 2024
FOMC, Powell "need greater confidence" on inflation
Federal Reserve Chair Jerome Powell has expressed a need for "greater confidence" in the fight against inflation, citing a "lack of further progress" towards stabilizing the US inflation rate around the 2% target. This statement raises concerns about the expected cuts in 2024, hinting that it could be several months before a rate cut.
Treasury yields near 5.0%
Treasury futures have escalated, with the 2-year yield approaching multi-year peaks of around 5.0% experienced in October 2023. This ascent in yields reflects market anticipation of continued rate firmness, which could strengthen the US dollar's position in the forex market.
US dollar surging on higher rates, flight to quality
Inflation can move higher
Historical precedents from the 1970s and 80s show inflation rates rising and falling in cycles, mirroring current patterns where inflation remains persistently high. Notably, inflation fell from 12% in 1974 all the way to below 5% - before rising again, peaking above 14% in 1980. While the Fed has been successful so far lowering inflation from 9% in 2022 to our current level at 3.5%, investors worry this historical context does not rule out the possibility of inflation rising once again despite high interest rates.
Interest rate cuts less likely in 2024
As a result of recent data, the probability of the Fed implementing one or no quarter-percent cuts to the current 5.5% Federal Funds rate is nearing 50% (CME FedWatch tool). This outlook is severely higher than at the start of 2024, when projections favored 6-7 25bps cuts in 2024. These shifts impact forex trading decisions, as traders recalibrate expectations for US dollar strength and currency pair movements.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
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