25.08.202312:05 Forex Analysis & Reviews: Market situation unlikely to change before US jobs and inflation data

Global markets are still reeling amid incoming economic data from the US. Statistics are mixed, which raises uncertainty over the future of the Federal Reserve's monetary policy.

Why is this happening?

The main reason is that there are two main factors based on which the Fed might put an end to interest rate hikes even at the current level or, conversely, continue raising them until the 2% inflation target is reached.

Now let's delve into this crucial question that affects the behavior of all global financial markets without exception, at least in the foreseeable future.

Well, the Fed might only halt its policy tightening cycle if the US economy faces a crisis. This scenario is possible if there are problems not only in the manufacturing and services sectors but, most importantly, in the labor market. At present, the regulator believes that as long as employment remains at an acceptable level and population incomes amid difficulties in the real sector of the economy, indicating an imbalance between demand and supply, will boost inflation. In fact, strong demand will contribute to higher inflation, which the Fed cannot allow. Therefore, as long as the US economy continues to add new jobs at a rate of no less than 200,000 per month, Powell and his colleagues at the Federal Reserve will provide markets with promises to raise interest rates.

The Fed will stop lifting rates only if the labor market situation significantly worsens, with new jobs below 200,000 and jobless claims above this threshold. However, this is not yet the case. The average number of new jobs is still above jobless claims, meaning that the likelihood of further rate hikes remains extremely high unless inflation heads toward the target level. For instance, Thursday's data on for the number of Americans filing new claims for unemployment benefits over the last 4 weeks increased to 236,750 from 234,500 for the previous period under consideration. Nevertheless, they are still lower than the overall average increase in new jobs.

This is why markets are reeling. On one hand, the state of the economy is not optimistic. On the other hand, the labor market remains strong, which adds to uncertainty.

Based on the above, we believe that market will remain nervous until the release of fresh US inflation and jobs data, which is set to come out next month and reflect the picture for August.

As for Powell's speech at the Jackson Hole symposium, we do not expect any surprising statements from the head of the US central bank unless something extraordinary happens.

Most likely, currency, commodity, and stock markets will continue their chaotic movement until statistics on unemployment and inflation are published.

Daily forecast:

GBP/USD

The pound/dollar pair fell below 1.2600 amid uncertainty about further interest rates, primarily in the United States. If the price fixes below 1.2610, the British currency will likely drop to the 1.2500 mark.

WTI crude oil

The price of oil is trading above the support level of 79.00. In fact, it returned to the range of 79.00-82.35. If the price consolidates above the lower boundary of the trading range, the benchmark will most likely rise to 82.35 and then probably to 85.00.