HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
XM information and reviews
XM
86%
NordFX information and reviews
NordFX
86%

What does soaring inflation mean for the markets?


The US CPI rose to a 40-year high of 7.5% in January as inflation keeps running hot despite economists expecting a print of 7.3%. This is the second time the index hit a 40-year high back-to-back. Analysts had expected inflation to show some signs of weakness. Instead, they now call for Fed to act more aggressively as the month-on-month data showed strength in addition to the yearly figures.

The immediate reaction

Stocks fell hard on the announcement, but they quickly reversed losses to only continue falling afterward. The SPX is down nearly 3%, Nasdaq trades 3.5% lower, and even industrials-heavy Dow is taking a beating 2% below its recent peak. The 2-year yield, which tracks 2-year rate expectations, soared to 1.65%, whereas the 10-year yield broke to 2-1/2-year highs at 2%. Both found resistance at these levels as markets try to digest the next big move.

Gold lost more than 1% of its value, and oil plunged nearly 3% as the dollar soared, whereas currencies like the euro, pound, and loonie fell around 1% give-or-take as the battle between central banks gets more tense.

Expectations going forward

Persisting higher inflation prompted the Fed to turn somewhat hawkish in January and signal its first rate hike in March. Based on a 40-year inflation record, some analysts thought that the Fed would need to step up its game and hike twice, but the rhetoric dissipated – up until yesterday.

According to CME’s FedWatch Tool, target rate probabilities for the March 16 meeting have ramped up from 7% on Wednesday to a whopping 98.6% following the CPI print.

May’s meeting now sees a target rate of 75-100 basis points from a pre-print figure of 11%. And most expectations by year’s end range between the 150-225 basis points, with a mean at 37.1% projecting 2% interest rates. This is eight hikes in 2022 alone. In January, the FedWatch tool showed a 0% probability of that happening.

What will investors do now?

Hiking rates are one of the biggest downside risks to markets, but investors will prefer to watch the US’s GDP and jobs markets. The reality is that as long as the economy grows and the jobs market improves, investors could continue to buy pullbacks. In the last release, US GDP expanded at 1.7% last quarter, 5.7% up for the year. This was the most significant annual growth since 1984. However, there seems to be an increasing notion that GDP has peaked and will start decelerating. Something all traders must watch.

US’s jobs market is not far from doing great too. Last month, the NFP delivered a massive beat by adding nearly half a million workers to the workforce.

But the concern investors will hold close to is that inflation is rising faster than wages. This is a recipe for recession; history has proven. However, the labor market does not flash any alarms yet, evidently seen in the GDP expansion. Despite the US economy recovering, living costs increase, and supply disruptions add to inflation and inventort build-up. Can central banks fight the future challenge?

What’s next for key markets?

Since the Fed is unlikely to stabilize inflation soon, the US stock faces serious headwinds. In addition, the Biden administration is unlikely to cut back on regulation and taxes, which adds to downside risks. And swiping the House won’t be until November – if there at all. On the flip side, markets do not crash without real risks having been counted for. Hiking is one of the early signals indeed, but not what could trigger a crash. A recession could trigger a crash. Technically speaking, the GDP will need to contract for two consecutive months. In theory, this might not be what markets read this time around to make a move.

That would be the rise in borrowing costs for the government. It might be why the Fed has held a close-mouthed stance about its hiking cycle all along. So, perhaps there is a chance market will keep going up a little more until then.

#source


RELATED

Is Forex More Risky Than Crypto?

In the ever-evolving financial markets, forex and cryptocurrency trading stand as two distinct realms, each offering unique opportunities and risks...

Why do people use MetaTrader 4?

MetaTrader 4 is a powerful tool for traders of all levels. Find out why so many people rely on it to power their trading success...

The Basics of Fundamental Analysis for Forex Market

Fundamental analysis is a trading discipline traders and analysts commonly use to assess the intrinsic value of a financial instrument by examining the underlying assets, industrial conditions and the broader economy...

Innovations in Forex Trading Technology

Read this article to learn about advancements in trading technology, such as AI-driven trading bots and advanced charting tools.

The Gold Standard: A Comprehensive Look into the Advantages of Gold Trading

From ancient empires to contemporary financial systems, gold has long been recognized as a potent symbol of affluence, security, and durability. Its timeless allure has established it as an instrumental asset for traders and investors...

The Reasons Why 90% of Crypto Traders Lose Money

Even though trading as a whole, and cryptocurrency trading, in particular, is a potentially vastly profitable endeavor where one can make as much money in a month...

The Basics of Trading Psychology

Trading psychology is an often-overlooked aspect of trading, yet it can have significant impact on a trader’s performance. The term “psychology “refers to the mental and emotional state of a trader...

What Are Forex Signals, And How Can You Use Them?

If you're looking to enhance your chances of success in the market, Forex signals can be an excellent tool to consider. These signals have the potential to help...

Trading Secrets: Mastering Trends, Breakouts, Pullbacks, and Corrections with Trading Volumes

Embarking on the journey of financial market trading – be it in Forex, stocks, commodities, or the crypto market – requires more than just an understanding of the basics...

Precious metals trading made clear: an Octa guide

With its unwavering commitment to clarity, the international broker Octa unravels another facet of trading. Grasp the essentials of precious metals trading in an uncomplicated, transparent manner...

Common mistakes to avoid in forex trading with CFDs

Read on to find out some common mistakes to avoid when trading forex with CFDs. The foreign exchange market draws a lot of new traders' attention due to its low entry requirements and extremely high liquidity (on average, more than $7.5 trillion is traded daily)...

Popular forex trading platforms

Forex trading platforms are designed to help traders navigate the complexities of the forex market, the largest and most active financial market in the world. They typically provide traders with the tools to execute trades and maximise profits...

Forex Affiliate Programs: Your Guide to Optimal Earnings

Forex trading is often celebrated as a method to generate substantial profits. However, there exists another, less conventional avenue for monetizing the markets: forex affiliate programs...

How Much Money Can You Make Trading Forex? A Comprehensive Guide

Forex trading has witnessed a surge in popularity as individuals seek opportunities to profit from financial markets. However, it's paramount to approach forex trading with realistic expectations...

Guide to Expanding Your Forex Trading Account

The realm of forex trading is undeniably intricate. Yet, it is far from unattainable. It beckons to those equipped with determination and the right mindset...

CFD Trading: Everything a Trader Should Know

CFD trading - where the financial markets buzz with opportunity and the potential for growth is as vast as your ambitions. At its core, CFD, or "Contract for Difference", trading is more than just about speculation on the price movements of various assets...

A Useful Guide on Trading Forex Online

The foreign exchange market, or forex market, is one of the most well-known markets in the financial industry. It is considered the largest and most liquid market worldwide...

Why Do Central Banks Have No Power Over Inflation?

Fighting global inflation, now at its highest point in decades, has become a number one priority for major central banks around the world. Monetary policy measures...

The global financial trend of the hour: Forex investments

Quite the confusion is afoot in the financial markets. Tighter regulation, rising inflation, energy sector disruptions, social unrest and wars have taken a toll on the world's economies. How come Forex, as a means of investment...

Difference Between CFD Trading and Investing

If you are a beginner trader, you can be confused when hearing that a stock can be bought (investment) and traded (CFD). What is the difference between CFD and investing...

Vantage information and reviews
Vantage
85%
FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.