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Fed left the rate unchanged

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This week it became known the Fed left the federal funds rate at its current level. The open market committee optimism supports the US currency and the stock market. Safety assets retreat.

Monday was marked by the reduction of prices in energy products. Prices fell by 1%. It was revealed that the active rigs count for oil and gas production in the US increased during the last week. In the long-term perspective, we observe the impact of several factors. Trump signed a decree allowing the extraction on the continental shelf. The resource potential of the whole US continental shelf is estimated at 12.3 billion tonnes of oil and 9.3 trillion cubic meters of undiscovered technically recoverable natural gas. It also became known about the slowdown in manufacturing activity in China. Let us recall that China is the main oil importer for the last year, outpacing the US.

On Tuesday, we observed a growth on the European stock exchanges. The EuroStoxx index advanced by 0.8%. Positive corporate reports and the growth in manufacturing PMI in the Eurozone were the drivers. The publication of unemployment level in March at 9.5% had another positive impact. The index remained unchanged for February, which indicates stable situation in the labor market. The US stock indices did not show significant dynamics. Investors expected the publication of the Fed rate, which added uncertainty to the market. It is also necessary to mention that indices are at historic highs. On the background of slow economic recovery of the US the US stock market looks overbought. Let us recall that in quarterly terms the GDP growth decreased from 2% to 0.7%.

On Wednesday, the US dollar index rose by 0.15%. The dynamics was supported by the growth of manufacturing PMI which rose by 0.6% in April. The strengthening of the US dollar affected the popularity of another safety asset- gold. Futures on precious metals hit weekly lows. Other factors include the breakaway lead of the French presidential candidate Macron over Le Penn. Let us recall that Emmanuel Macron favors preserving and stabilizing the European bloc. The strengthening of his position markedly reduces investment risks of European investors and allows to redistribute portfolios in favor of the European stock market.

On Thursday, the US Fed left the base rate unchanged at the level of 1%. Meanwhile, representatives of the open market committee indicated a prospect of rate growth in June regardless of economic indicators. The possible tightening of the monetary policy supported the US dollar which remained close to highs. Representatives of the committee are sure that the slowdown in the GDP growth in the last quarter is not a significant event. The only sector of the US stock market, which showed a growth is the consumption sector, +0.6% for the US session.

By Friday, the Russian ruble temporarily returned to its commodity nature. On the background of a decrease in prices of energy products, we observe the weakening of the national currency by more than 2% in a week. The market expected the publication of the forecast of global oil demand on May 11. Also, the results of the production cut impact of on the market will be published- the agreement reached by the OPEC countries in 2016. Regarding the foreign currencies, the New Zealand dollar should be mentioned. The inflation expectations of large business representatives rose from 1.9% to 2.2%. The indicator is released on quarterly basis and shows the expected inflation level in the coming year. On Friday, the New Zealand dollar strengthened by 0.7%.

Next week it is worth focusing on the European currency and the British pound, in particular. On Thursday, the report of the Bank of England will be presented where the inflation expectations, prospects for economic development in the transition period after Brexit will be presented. We expect a rise in volatility of the British currency, which may be used for short-term speculations. Friday is the first day of the “Big seven” meeting. One of the main topics will be the recovery of the EU economy on the background of good economic indicators of the latest quarters. It is worth considering the EUR/USD key level 1.113, above which the European currency can be bough with take profit at 1.118.

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