US Inflation Hits 4-Decade High, UK GDP Data to Come

AUD/USD => The Aussie falls towards 0.71

EUR/GBP => The pair falls towards 0.84

Gold => The commodity heads lower for a second day

AUD/USD Falls after US Inflation, RBA Lowe’s Speech

AUD/USD fell yesterday and is extending those losses today on central bank divergence. Whilst the US dollar is rising firmly after the 4-decade high inflation spark bets of the Fed could raise interest rates by 50 basis points at its next meeting rather than 25 basis points originally forecast and could hike rates up to 6 times across the year. Meanwhile, the Reserve Bank of Australia’s Governor, Philip Loew, said in a speech that there is no evidence that the economy is overstimulated at the moment. He added that the RBA will wait for evidence that inflation has risen in a sustainable way. These comments, in addition to the risk-off mood in the market, are hurting demand for the Aussie. The economic calendar is relatively quiet today. US Michigan consumer sentiment is due later.

What’s next for AUD/USD?

AUD/USD failed to push above the 100 sma at 0.7250 and rebounded lower, breaking below the 50 sma. The bearish engulfing candle, combined with the receding bullish bias on the MACD are keeping the seller’s hopeful of further downside. Immediate support can be seen at 0.71 round number on the way to 0.7085 the January 24 low and mid-December low. A breakthrough here could negate the near-term uptrend and open the door to 0.7050. On the upside, buyers need to retake the 50 sma at 0.7170 in order to target the 100 sma and yesterday’s high of 0.7250.

Will UK GDP pull EUR/GBP lower?

EUR/GBP is falling again on Friday, extending losses from the previous day. The pound has shown resilience despite cautious comments from BoE Chief economist Hue Pill earlier in the week, who warned over raising interest rates too quickly. Today’s attention is on both German inflation data for January, the final reading, and also UK GDP for Q4, which is the preliminary reading, so could be more market moving. The expectation is for modest growth in the final quarter as robust growth in October and November offset the Omicron slowdown in December. Strong economic growth, combined with the high inflation in the UK would support the BoE to tighten monetary policy further and lift the pound. 

Gold Falls on Fed Rate Hike Fears

The price of Gold fell 0.3% yesterday and is falling slightly lower again today, after U.S. inflation surged to 7.5%. The cost of living in the world’s largest economy hit its highest level since 1982, prompting bets that the Federal Reserve will act more aggressively to raise interest rates. The market is increasingly expecting the Fed to raise interest rates by 50 basis points, rather than 25 basis points at the next meeting, which isn’t until March. Some Fed policymakers have already expressed their concern over the level of inflation, calling for an unscheduled meeting to hike rates. The key takeaway from the data is that inflation is higher than expected and the Fed is expected to hike faster. This makes non-yielding gold less attractive.

Support can be found at 1815 (low 8 February) and 1807 (50 sma)

Resistance for the stock can be seen at 1840 (yesterday’s high) and 1850 (January 26 high)

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