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12.09.202314:44 Forex Analysis & Reviews: US consumer inflation expectations remain elevated

US consumer inflation expectations remained high in August, increasing pressure on risk assets. Meanwhile, households are growing increasingly concerned about their finances and the job market outlook.

According to a survey by the Federal Reserve Bank of New York, average inflation expectations for the upcoming year slightly increased last month, reaching 3.6% from 3.5% in July. Expectations for three-year inflation dropped to 2.8% from 2.9%, while the five-year forecast rose to 3.0% from 2.9%. The bank's statement highlighted a notable shift in how consumers perceive their financial health, with views on current lending conditions and future expectations deteriorating.

Exchange Rates 12.09.2023 analysis

Survey participants predict a higher unemployment rate a year from now. The perceived risk of losing a job in the next year jumped by 2 percentage points to 13.8%, the highest since April 2021. The likelihood of voluntarily changing jobs in the next year also increased, rising by 1.9 percentage points to 18.9% in August.

On the lending front, consumers are increasingly concerned about obtaining credit. More households report that securing credit is now more challenging, reaching its highest level since the survey began in June 2013. Many anticipate it will become even more difficult to access credit next year.

Notably, the US Federal Reserve officials have significantly hiked interest rates over the past 18 months, marking their highest in 22 years, in efforts to curb demand and tame inflation. Higher rates increase borrowing costs, possibly prompting banks to tighten credit access. While the FOMC is expected to maintain the key rate at 5.5% in its September meeting, a lot hinges on the upcoming August Consumer Price Index data.

Encouraged by signs of easing price pressures and a cooling labor market, Fed representatives increasingly talk about a soft landing without significant harm to the market. This sentiment bolsters demand for the US dollar against riskier assets like the euro and the British pound.

As for the euro/dollar pair, bears have slightly eased their grip. Bulls should fix the price above 1.0720 to control the market. This could pave the way back to 1.0760. From there, a jump to 1.0790 is possible, but achieving this level without support from major players is challenging. If the currency pair declines, major buyers may act near 1.0720. If we see a lack of activity from them, it would be better to wait for a drop to 1.0690 or to consider long positions from 1.0665.

As for the pound/dollar pair, the growth of the British currency continues. We can count on a strengthening only after controlling the level of 1.2530. Returning to this area, the pair may recover to 1.2560, after which we can talk about a stronger upward breakout to 1.2700. If the pair falls, bears may try to regain control of 1.2484. If they succeed, a breach of this area will deal a blow to the bulls' positions and push the price to the low of 1.2440 with the prospect of reaching 1.2400.

*El análisis de mercado publicado aquí tiene la finalidad de incrementar su conocimiento, más no darle instrucciones para realizar una operación.

Jakub Novak,
Analytical expert of InstaSpot
© 2007-2024
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