June 19, 2018

Orbex, How 3 main Economic Events from last week affected Market Trends?

Market Trends are always created by Fundamental and Technical factors. Let’s review the market and learn from the past!

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This article is originally referred from Orbex Market Review.

The Euro currency was seen posting strong losses after the ECB’s decision to end its QE in December was offset by the dovish statement on interest rates.

The U.S. dollar was also seen easing back into the end of the week.

This came amid the Fed hiking interest rates by 25 basis points and signaling two more rate hikes for this year.

The markets were seen trading mostly mixed with the BoJ also staying on the sidelines this week for its monetary policy decision.

UK unemployment holds steady but wages freeze

The UK’s unemployment data released last week showed that the nation’s unemployment rate had held steady at 4.2%.

This was the lowest unemployment rate registered since 1975, data from the UK’s Office for National Statistics (ONS) showed last week.

The unemployment rate was at 4.6% at the same period just the year before. There were 1.42 million people unemployed with the employment rate at 75.6%.

UK Unemployment Rate (May 2018): 4.2% (Source: Tradingeconomics)

Unemployment was seen falling by 38,000 between the months of February and April.

Despite the steady unemployment numbers, wage growth, which has become a crucial component amid rising consumer prices remained steady.

Average earnings excluding bonuses were seen rising 2.8% in the three months April.

This was a modest decline from 2.9% increase that was seen just the month before.

Including bonuses, wage growth was seen rising just 2.5% during the period.

The data came ahead of the UK’s inflation figures which was released on Wednesday.

Official data showed that consumer prices remained steady, rising at a pace of 2.4% on the year ending May 2018.

This was widely in line with the median expectations.

Core inflation rate that excluded food and energy prices were seen rising 2.1%, the same pace as the month before and matching the median estimates.

While consumer prices might have slowed, the fact that wage growth also eased signals a cause for concern.

The economic data comes ahead of the Bank of England’s monetary policy meeting next week.

FOMC hikes rates by 25 basis points

The U.S. Federal Reserve concluded its two day monetary policy meeting on Wednesday last week.

As widely expected, the central bank hiked the short term interest rates by 25 basis points, bring the Fed funds rate to 1.75% – 2.0%.

The increase in the interest rate was widely expected with the Fed funds rate seen at 1.875% overall.

The markets were also uncertain about the possibility of a fourth rate hike this year.

This was put to rest as the central bank signaled that interest rates could be hiked for a fourth time this year, confirming the market expectations.

The central bank acknowledged the solid pace of economic growth and use hawkish language in its statement.

The FOMC also gave its staff economic projections at last week’s meeting.

According to the median estimates of the FOMC members, inflation in the United States is expected to average around 2.1% this year and is expected to remain steady around this level until 2020 with a temporary overshoot of inflation.

On the economy, the FOMC members projected a 2.8% growth in the economy for the year 2018.

The unemployment in the United States was also forecast to fall further to 3.6%.

The unemployment rate currently sits at 3.8%.

Speaking at the press conference, the Fed Chair, Jerome Powell sounded confident and upbeat on the economy noting that the environment of low unemployment and stable inflation was helping the economy to surge ahead.

ECB announces reduced bond purchases from September

The European Central Bank’s monetary policy meeting held last week saw central bank officials leaving the key interest rates unchanged.

However, officials announced that the ECB would end its 30 billion euro a month bond purchases in September.

A reduced amount, 15 billion euro is expected to continue until end of December this year.

The central bank said that it would take a considerable amount of time for the ECB to raise interest rates.

This offset the hawkish outlook initially set forth in the ECB’s statement.

Original Source: Orbex Market Review

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