Will The United States Federal Fund Rate Hike Drive The US Dollar Gains Higher? Gold Gaining On Safe Haven
The federal fund rate is the interest rate in the United States and it’s a paramount factor in currency valuation in a nation. It is highly correlated with the economic outlook because its changes can affect both inflation and recession.
For decades, the Federal Reserve has utilized the interest rate as a monetary policy tool to attain its mandate of inflation control, price stability, and maximum employment.
Currently, the US inflation dropped to 5.0%, from a previous high of 6.0%. This is a comparative improvement in the inflation number as the cost of goods and services is gradually being tamed by the Federal Reserve fund rate hike.
Furthermore, economic analysts are forecasting a 25bp hike in interest rates on the 3rd of May. This could drive the fund rate to 5.25%, from the 5.00% previous mark. This could probably mark the end of the tightening monetary policy cycle as recession fears hover.
In line with this, the US dollar will likely experience a downside move in the near term as the mild dovish signal is anticipated. This could be a bullish economic indicator for the metal commodity market space such as gold and silver as traders hop for safe haven.
The US Dollar Index
0n a daily timeframe, the US dollar index has maintained a bearish pattern and currently sits at 101.672 at the time of writing this article.
The US job market looks healthy as the unemployment rate sits low at 3.5%. However, rising unemployment and recession is likely in the near term as the fund rate hike persists.
Regardless, traders should brace themselves up for a period of high volatility as The Federal Fund Rate report often has a great impact on the FOREX market. An increase in Fund Rate will usually strengthen the US Dollar (USD), while its decrease will usually weaken the United States Dollar.
Traders should always be aware that volatile markets provide great opportunities for making profits, as the increase in volatility can cause market swings for traders to capitalize on.
The currency pairs that include the US dollar, US Futures, US indexes, US Commodities, and Shares are mostly affected by the data release. They include EURUSD, GBPUSD, XAUUSD, XAGUSD, USDJPY, USDCAD, USDCHF, AUDUSD, NZDUSD, US100, US500, US Oil, Facebook, Amazon, Tesla, etc.
Time Schedule for next Fund Rate release:
Date: Wednesday 3rd May 2023.
Time: 7:00 pm (GM + 1)
Author: Amogo Solomon
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