Gather around the campfire for a tale scarier than any ghost story. Picture this: the Federal Reserve is like a bogeyman, always threatening to lower interest rates but never actually doing it. That’s what’s going on in the market. Investors have been waiting for a rate drop for the second year in a row, and it looks like they'll be waiting a while longer.
The latest inflation report for March spooked everyone, showing consumer prices soaring by 3.5%, way above expectations. What does high inflation mean? It means the Fed's gonna keep interest rates high for longer to fight it. As soon as that data hit, you could practically hear the market's collective gulp, with the EURUSD and XAUUSD taking a nosedive right after.
Let’s take a look at the chart illustrating how these assets have been faring since the beginning of the year. From this perspective, the drop wasn’t significant, yet noticeable.
But sometimes, the most crucial thing is beyond the chart. Recent economic stats (like inflation and unemployment data), the Fed meetings, and the overall strength of the US economy have got investors and experts singing a different tune. Those predictions about a rate drop in June? Yeah, they're sounding more like a broken record. First, it was fall, then winter, spring... and now, even summer's feeling uncertain.
More and more analyst firms agree that we won't see that rate drop until late summer or September. That means we'll be seeing a solid US dollar for a while longer. Besides, other big central banks might start cutting rates before the Fed does. Frankly speaking, it’s too early not to consider the USD as a rival.
We're not expecting a major surge in the US dollar because the market's gonna be hanging on every word from the Fed. Yet, in the short term, notably during the summer months, expect heightened volatility and intricate market movements. So, keep an eye on the news, and don't make any moves without some serious analysis.
