Could the Fed hike interest rates again? What it means for S&P 500, USD
Amid persistently strong US data, Markets begin to doubt the arrival of Fed rate cuts in 2024. With a growing chance of no cuts in 2024, the USD strengthens, and the S&P 500 teeters near highs, reshaping market outlooks.
Data current as of 4/15/2024
Key points
- Fed Powell says rate cuts, "at some point this year": (1:13)
- US inflation rate data higher than expected: (2:50)
- Can US inflation rates rise again?: (3:47)
- Chance of no rate cuts in 2024: 12%*: (6:27)
- S&P 500 trading near all-time highs $5,300: (9:00)
- US dollar appreciates amid US interest rate strength: (10:33)
*Probabilities calculated using the CME's FedWatch tool
Fed Powell says rate cuts, "at some point this year"
At the most recent FOMC meeting, Federal Reserve Chair Jerome Powell hinted at possible interest rate cuts sometime within the year, aligning with the Federal Reserve's dot plot projections. However, this anticipation of easing monetary policy may require greater patience as US date continues to outperform, namely inflation and employment figures.
US inflation rate data higher than expected
The US continues to report CPI inflation rates surpassing the Fed's 2% target, indicating persistent price pressures within the economy. The most recent reading for March surpassed expectations, rising towards 4% or higher. This sustained high inflation could impact the Federal Reserve's approach to interest rates, directly affecting the forex market and investor sentiments.
Can US inflation rates rise again?
Historical data reveal that US inflation rates surged above 10% twice between 1973 and 1983. Such precedents raise concerns about a potential repeat, as the fall from the first peak in the 1970's mirrors the current landscape remarkably well. This context could influence future Federal Reserve rate decisions and the broader economic landscape that forex traders must navigate.
Chance of no rate cuts in 2024: 12%
Futures markets from the CME now suggest a 12% likelihood that the Federal Reserve will not cut rates in 2024, with projections leaning towards higher Treasury yields and Fed Funds rates. Just months ago, this likelihood was consistently 0%, with double the rate cuts expcted at the moment. This scenario suggests tighter monetary conditions than anticipated, influencing forex trade dynamics and possibly continued strength for US dollar.
S&P 500 still close to all-time highs
Despite a downtick in S&P 500 futures to start April, the index remains within striking distance of its all-time highs, less than $200 away. This resilience in the stock market reflects underlying economic strength and investor confidence, but also uncertainty around if rates will lower as expected.
US dollar appreciates amid US interest rate strength
The US dollar has seen appreciable gains in recent trade, with USD/JPY trading above 154.00 and the EUR/USD and GBP/USD falling below 1.0700 and 1.2500, respectively. This appreciation is closely tied to the strength of US interest rates, offering forex traders insights into currency trends and positioning.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex broker like IG. Many traders watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
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