The EURUSD currency pair was trading higher as the euro gained against the US dollar following the release of downbeat US PPI data, which many think will force the US Federal Reserve to change its monetary policy stance at its next meeting.
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Most investors and analysts are now predicting that the Fed will have no choice but to stop hiking rates within the first half of this year. Many also believe that if the Fed hikes the rate, it will have to adopt smaller rate hikes, unlike at previous FOMC meetings.
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The Fed closely watches critical economic indicators, including the producer price index (PPI) and the retail sales data. Today’s data showed that the PPI fell by 0.5%, beating analysts' estimates of a 0.1% decline, while the retail sales fell 1.1%, versus consensus expectations of a 0.8% decline.
Today’s data and recent lower inflation prints led by the CPI have created mounting evidence that the US economy is wallowing down. Still, it is unclear whether the recent data has met the Fed’s extremely high requirement of compelling evidence.
The Fed has resisted calls from multiple sources, including various industries, to pause rate hikes, but has consistently insisted that there was not enough data to indicate that the Us economy has cooled off.
However, there are more compelling reasons now for the Fed to slow down than at any time in the past, and it remains to be seen what the central bank will decide at its next meeting on February 1, 2023.
The Fed must realise that despite its reluctance to change its monetary policies, the markets have started rising in anticipation of the same. Therefore, it cannot keep kicking the can down the road since this could significantly damage the US economy this year.
On the other hand, the EU has promised to increase its spending on green initiatives in response to Joe Biden’s ‘Inflation Reduction Act’ (IRA). The decision comes as most European countries look to eliminate their need for Russian energy.
*This is not investment advice.
The EURUSD price chart.
The EURUSD currency pair was trading up 66.8 (0.63%) at writing as the euro rallied against the US dollar.
YOUR CAPITAL IS AT RISK. 76% OF RETAIL CFD ACCOUNTS LOSE MONEY.