Daily Market Analysis From Forexmart

Tips for beginner traders in EUR/USD and GBP/USD on October 20, 2022

Details of the economic calendar of October 19
UK inflation rose again to a record 10.1% in September. The consumer price index returned to this year's July level when a 40-year record for annual inflation was set.

The British currency reacted quite calmly to these data. The quote was gradually decreasing, which fits into the technical picture of the price rebound from the resistance area.

In the European Union, inflation data slightly differed from the preliminary estimate, which indicated an increase in consumer prices to the level of 10%. As a result, inflation accelerated from 9.1% to 9.9%.

Even though the indicator above is slightly lower, inflation is still very high. Thus, the ECB has all the arguments for a further increase in interest rates.

Analysis of trading charts from October 19
The EURUSD currency pair failed to stay above the benchmark value of 0.9850. Instead, a stagnation was formed, which eventually led to a downward momentum, lowering the quote below the 0.9800 mark.

The GBPUSD currency pair came close to the price gap at the beginning of the trading week during the downward movement from the lower boundary of the resistance area 1.1410/1.1525. In this case, the gap serves as a support, which led to a reduction in the volume of short positions.

Economic calendar for October 20
Today, weekly data on US jobless claims will be published, where figures are expected to rise. This is a negative factor for the US labor market.

Statistics details:

The volume of continuing claims for benefits may rise from 1.368 million to 1.375 million.

The volume of initial claims for benefits may rise from 228,000 to 230,000.

Time targeting:

US Jobless Claims - 12:30 UTC

Trading plan for EUR/USD on October 20
The 0.9750 mark serves as a variable pivot point. To prolong the downward cycle, the quote needs to stay below this value. This move will lead to a depreciation of the euro at least to the level of 0.9700.

An alternative scenario for the development of the market will be considered by traders if the price returns above 0.9800. In this case, euro buyers will have a second chance to hold the price above the control value of 0.9850.

Trading plan for GBP/USD on October 20
For a technical signal about the prolongation of the downward cycle to appear, the quote needs to stay below 1.1150. In this case, the sellers will open the way in the direction of 1.1000.

As for the upward scenario, the current stagnation within the price gap may eventually lead to a price rebound. In this case, a reverse move to the resistance area 1.1410/1.1525 cannot be ruled out.

 

Tips for beginner traders in EUR/USD and GBP/USD on October 21, 2022

Details of the economic calendar of October 20
Weekly data on jobless claims in the United States reflected a slight increase in the overall figure.

Statistics details:

The volume of continuing claims for benefits rose from 1.364 million to 1.385 million.

The volume of initial claims for benefits fell from 226,000 to 214,000.

What are they talking about in the media?

The main news of the past day is the statement of Liz Truss that she is leaving the post of Prime Minister of Great Britain. An interesting fact is that Truss's premiership was the shortest in British history, with only 45 days.

The reason for her resignation was the discontent and dissension caused by her radical program of tax cuts and increased spending. This plan drew a sea of criticism from all economic and political circles.

How does the market react to her departure?

The pound sterling slightly appreciated in value. There were no cardinal changes in the market due to vague prospects.

Analysis of trading charts from October 20
The EURUSD currency pair once again rebounded from the control value of 0.9850. As a result, the quote returned to where the trading day on Thursday began. The value of 0.9750 serves as a support.

The GBPUSD currency pair, despite the impressive information flow, is moderately active. This suggests a characteristic uncertainty among market participants. As before, the value of 1.1150 serves as a support.

Economic calendar for October 21
At the opening of the European session, data on retail sales in the UK were published, which fell from -5.4% to -6.9%, with a forecast of -4.8%.

The reaction of the pound sterling to the negative statistics was appropriate—it continued to decline.

Trading plan for EUR/USD on October 21
In this situation, traders are guided by two main values at this stage—holding the price below 0.9750 in a downward scenario and 0.9885 in an upward market development.

It is worth noting that due to the strong information and news flow in the UK, market speculation may arise, where synchronous price jumps will occur through a positive correlation with the pound sterling.

Trading plan for GBP/USD on October 21
In this situation, keeping the price below 1.1150 will increase the chances of sellers for further decline in the direction of 1.1000. It is worth noting that the market is still in confusion. For this reason, chaotic price jumps are possible.

 

FX interventions to stop USD rally?

The US dollar and the euro opened the week amid a mixed fundamental background. The euro is still under pressure from geopolitical tensions and the energy crisis, while the greenback risks getting into a so-called intervention loop.

According to analysts at Nordea Bank, currency interventions carried out in the global market "may dampen the strengthening of USD in the short to medium term." For your reference, FX interventions are done by the countries that seek to prop up their currencies against the US dollar. However, this scenario is very unlikely as most countries do not have "an endless amount of USD at disposal to sell."

Nordea Bank is sure that such interventions will fail when the supply of US dollars in these countries runs dry. FX interventions involve selling US Treasuries which adds upward pressure on key rates and leads to a stronger US dollar. Experts warn that this intervention loop may turn out to be negative for the greenback as it could lead to "dollar overshooting." Yet, even this potential failure of USD will not support the euro as it is likely to face a new sell-off wave in the near future. This is quite logical as EUR/USD has been trading within the downtrend since late September 2022. The pair is currently staying in the range of 0.9500 –1.0000. As the geopolitical and economic situation in the EU is getting worse, the euro is set to decline to the lower boundary of this range at 0.9500.

At the moment, the euro/dollar pair looks stable although the euro is still depreciating against the dollar. Early on Monday, October 24, EUR/USD was hovering near 0.9839, trying to maintain the balance. The triangle pattern formed after the breakout of the resistance at 1.0000 may become the main catalyst that will push the pair up to the level of 1.0250.

The greenback opened this week with another advance that has become typical for the currency. At the same time, records showed that the number of long positions opened by large market players decreased by the end of the previous week after a 3-week rally. However, the number of long positions opened by hedgers remained unchanged. This indicates persistent market uncertainty and low risk sentiment among market participants.

Experts stress that financial conditions have been worsening for several weeks now. However, the limit of monetary tightening has not been reached yet. Therefore, the Fed will have to pursue its policy of aggressive rate hikes. Against this backdrop, the stock market tumbled. All measures taken by the Fed are aimed at combating inflation. Most investors expect the US regulator to raise the rate further. It is estimated that the Fed's rate will peak at 5% by May 2023. If so, financial conditions will naturally deteriorate, analysts warn.

According to some forecasts, US inflation may reach 4% to 5% in the next 4-8 months. Then, a slowdown may follow. But even so, the US central bank is unlikely to ease its policy. Instead, it could slow down the pace of rate increase. There is an opinion that inflation in the US is caused by transitory factors in contrast to other countries. The situation is believed to improve soon. If this is true then the Fed may focus on economic growth and lower the rate. So, there is a chance that by 2024, the key rate will decline to 4.5–5%.

 

GBP/USD. The dollar will soar by the end of the week. It's time for the pound to cool down

The pound has been evaluating political news in a positive light since the morning. How will the mood of traders of the British currency develop in the near future and is it worth counting on the growth of the exchange rate in the future?

Today, investors are assessing the news about the appearance of a new British prime minister. Rishi Sunak was elected head of the ruling Conservative Party of Great Britain, and will also take the post of prime minister of the country.

England has surpassed itself in political twists and turns. Sunak will be Britain's third prime minister this year. In July, Boris Johnson announced his intention to resign. Liz Truss, who was elected in his place, was able to stay in the prime minister's chair for 44 days and also resigned due to an avalanche of criticism against her.

Many see the new prime minister as a source of stability. Perhaps there really is some truth in this, when compared with the chaotic rule of the Truss, during which serious volatility was observed in the markets. Time will tell what kind of ruler Rishi Sunak will be, but for now market players are breathing a sigh of relief and are in a cautiously positive frame of mind.

Today, the GBP/USD pair rose to 1.1293 from the previous closing level of 1.1275.

As expected, the pound may continue to rise in the short term, but it risks failing during the week. Economic data is ahead, and they are likely to show an even greater divergence from the US economy for the worse.

While the market has welcomed the recent developments surrounding the election of a new prime minister, they alone can do little to improve Britain's economic prospects. The GBP/USD pair may continue to rise, but estimates regarding the extent of the rate hike are already declining.

If the 1.1500-1.1700 range becomes a reality in the very near future, this does not mean that the quote will fly further and higher. Such a scenario is more like a decent short entry point. The target range for the end of the year is still 1.0800-1.1200.

Britain released a disappointing PMI on Monday. Indices of activity in the manufacturing sector and the service sector collapsed, falling below market expectations.

The composite index in October was 47.2, which is two points lower than in September. Its value has become the lowest in the last two years. In addition, the business activity indicator has been below 50 points for three consecutive months.

The reason for the sharp decline in the index in October is called political instability in the country, which caused turmoil in the financial markets.

Anyway, the current situation points to the recession that has formed in the country. A reduction in economic growth may occur as early as the third quarter, and in the fourth negative trends will only intensify.

The prospects of the pound, among other things, depend on the positioning of the US dollar and its further strength.

Will the decline in the dollar index last until the end of the week? Much will depend on how traders react to the upcoming economic reports in connection with the forecast of the Federal Reserve's policy. The focus is on the GDP report for the third quarter and the employment cost index for the same period. Data on wages and inflation will strengthen the hawkish attitude of the Fed.

One of the most significant risks for the pound this week will be the US GDP report. It can show that America is emerging from a technical recession, while the UK is entering an active phase of recession. Divergence in economic prospects will undermine the pound's recovery.

A serious obstacle is the core PCE price index's release this Friday, the Fed's preferred inflation indicator. The inflation rate is expected to increase from 4.9% year-on-year to 5.2%.

If so, it will be more than enough to guarantee the Fed's hawkish attitude, which has helped the dollar reach new heights against many currencies in the weeks since the bank set course to raise the benchmark interest rate to 4.5% by the end of the year and 4.75% at the beginning of the next.

In general, the dollar index is forecast to rise to 114.00 this week.

 

Tips for beginner traders in EUR/USD and GBP/USD on October 26, 2022

Details of the economic calendar of October 25
The macroeconomic calendar was empty, thus statistical data in Europe, the United Kingdom, and the United States were not published.

For this reason, investors and traders paid special attention to the information flow, where Rishi Sunak officially took office as Prime Minister of Great Britain.

The main theses of the speech of the new Prime Minister:

- The effects of the pandemic on the economy remain.

- We will put economic stability at the center of the agenda.

- There will be difficult decisions;

- We will build an economy that will take full advantage of Brexit.

- I'm not scared, I understand that I must restore trust.

The British financial sector welcomed the new prime minister; the pound sterling was actively strengthening in value, pulling up the euro.

Analysis of trading charts from October 25
The EURUSD currency pair completed fluctuations within the intermediate level of 0.9850. As a result, an inertial upward move appeared on the market, which brought the euro rate close to the parity level.

During the past day, the euro exchange rate strengthened at the peak by about 1%, which is about 100 points.

The GBPUSD currency pair, during an intensive upward movement, has overcome the lower border of the resistance area of 1.1410/1.1525. This move indicates a high hype for long positions in the pound sterling by market participants.

During the past day, the pound sterling appreciated at the peak by about 2%, which is about 200 points.

Economic calendar for October 26
Today, the macroeconomic calendar is half empty, only the data on new home sales in the US is expected. September sales may fall sharply, which is a negative factor for the country's economy, which may put pressure on dollar positions.

Time targeting:

US new home sales – 14:00 UTC

Trading plan for EUR/USD on October 26
After an upward rally, the quote temporarily formed a stagnation that lasted throughout the Pacific and Asian sessions. This consolidation led to the accumulation of trading forces, which resulted in a new speculative surge in activity.

As for the direction of movement, everything here will depend on how market participants behave within the parity level. In this situation, it would be reasonable to see a rebound due to the technical signal of the euro being overbought in the short term.

If the parity level is broken, and the quote is firmly held above it in the daily period, then there is a high probability of a subsequent upward move. In this case, we can see a gradual recovery of the euro.

Trading plan for GBP/USD on October 26
At the opening of the European session, buyers of the pound sterling again broke into the market, which led to a new upward impulse. As a result, the quote rose above the resistance area, which may indicate the possibility of prolongation of the current ascending cycle from the low of the downward trend.

It should be noted that the technical signal of the prolongation will be confirmed only after the stable holding of the price above the level of 1.1525 in the daily period.

 

USD/JPY: USD to come out on top again

The currency market seems to have turned upside down. The US dollar, which has remained a king on Forex this year, suddenly began to lose ground. The yen, which is considered the main outsider this year, took advantage of the greenback's weakness which. It rose significantly.

Why USD loses ground

On Thursday night, the US dollar saw a large-scale sell-off. The US dollar index dived by 1.1%, reaching the monthly low of 109.56.

The greenback dropped across the board due to increased expectations of less aggressive tightening by the Fed and more hawkish stances of the ECB and the Bank of England.

In light of the recent weak US economic reports, traders have revised their outlooks for the Fed's monetary policy.

Investors expect the regulator to raise the interest rate by 75 basis points at the next meeting. However, they believe that the regulator will hardly undertake the same rate increase in December.

Aggressive tightening launched by the Fed to tame soaring inflation has adversely affected the economy. The world's largest economy is starting to show signs of slowing down.

It may force the Fed to shift to less aggressive rate hikes. If this scenario comes true, it will be rather bearish for the US dollar.

This year, the main driver for a rally was the monetary tightening. As the Fed has hiked rates more aggressively than other central banks, the greenback has skyrocketed to multi-year highs against its rivals.

It has grown the most versus the yen amid the divergence in monetary policies of the Fed and the BoJ. Since the beginning of the year, the yen has fallen by more than 20%, logging the worst performance among all the currencies.

The yen has become an outsider due to the Bank of Japan's commitment to a dovish stance. The regulator maintains its ultra-loose stance, while other major central banks are hiking rates.

After expectations of a slowdown in monetary tightening by the Fed have increased, the yen managed to climb.

The yen has been growing for two consecutive sessions. This morning, the Japanese currency extended gains.

At the time of writing the article, the USD/JPY pair fell by 0.5%, trading around 145.6. This is almost 5% below the high of 152 reached last week.

USD likely to rebound

Now, the dollar/yen pair is rapidly recovering after recent sell-offs. It has already approached a 32-year low.

However, many analysts believe that the current rally of the JPY will be short-lived as the US dollar could assert strength amid strong US economic data.

The US GDP report for the third quarter is due today. The indicator is projected to advance by 2.4% following a decrease of 0.6% in the previous quarter.

If this scenario comes true, market participants will have to revise their forecasts for the Fed's further plans for monetary policy, abandoning hopes for a softer stance.

The US dollar is sure to regain ground, while the yen will resume a downward movement.

On top of that, the JPY may decline even more after the results of the BoJ meeting. This event has been the main driver for the yen this week

Given a domestic demand shock in Japan, many analysts believe that the Bank of Japan will maintain its ultra-loose monetary policy to spur economic growth.

"The Bank of Japan will likely keep its main policy levers unchanged, yet again. Core inflation well above the 2% target and set to hit 3% isn't enough to prompt the BOJ to reduce monetary easing. Stronger wage growth is desired first," Bloomberg emphasizes.

The BoJ may keep the interest rate in negative territory, while the ECB may raise the key rate by 75 basis points today. The Fed will do the same next week. This is why the yen may again lose luster with investors.

In the short term, it may resume a sharp decline. If the yen collapses to critical levels again, the Bank of Japan will have to intervene once again.

Over the past month, the Japanese government has intervened in the forex exchange market three times. One intervention was officially announced. Analysts are sure that there have been two more. However, the Ministry of Finance did not announce them.

All interventions had a short-lived effect. The greenback recovered quickly thanks to strong fundamental factors, which boosted bullish bias.

Bulls are confident that the pair will climb again despite any intervention. The main thing is that the Fed adheres to its hawkish stance. If so, the US dollar will definitely resume an upward movement.

 

Trading plan for EURUSD on October 31, 2022

Technical outlook:
EURUSD dropped through the 0.9914 lows intraday on Monday before finding support and reversing sharply to 0.9945. The single currency pair is seen to be trading close to 0.9935 at this point in writing as the bulls prepare to resume higher towards the 1.0170-1.0200 area. The currency pair is testing the backside of the past resistance trend line around 0.9910-20, which now serves as support.

EURUSD might have one more rally left to terminate its counter-trend rally, which began from 0.9535 earlier. The proposed target prices are towards 1.0200 and 1.0350, which are also lined up with resistance levels as marked on the daily chart. Immediate support is at 0.9700 on the daily chart and we can expect higher prices from here until it remains intact.

EURUSD is currently working on its recent upswing between 0.9700 and 1.0093. Prices are finding support just above the 0.9900 mark and could resume higher from here. Strong intraday support is seen at about 0.9850 as it is also the Fibonacci 0.618 retracement of the above upswing. We are looking higher from here in the near term.

Trading idea:
Potential rally through 1.0200 and higher against 0.9500

Good luck!

 

Euro sadness is growing: macro data makes you sad. And the dollar is no stranger to: either retreat, or win

The US currency has once again bypassed the European one, which is seriously puzzled by a new batch of news about inflation. At the same time, the dollar draws confidence in the Federal Reserve's actions, which allows the completion of the current cycle of rate hikes.

The greenback significantly strengthened at the beginning of this week, restoring some of the positions lost over the past month. This was largely facilitated by the expectation of another interest rate hike from the Fed, whose two-day meeting is scheduled for November 1-2. According to preliminary calculations, on Wednesday, November 2, the central bank will raise the key rate by 75 bps, to 3.75-4.00%. This will be the fourth step on the Fed's part in raising rates.

However, many analysts and market participants doubt the continuation of the Fed's harsh rhetoric. According to experts, after the fourth rate hike by 75 bps, the central bank will take a less aggressive position on this issue. Michael Wilson, currency strategist at Morgan Stanley, is sure of this. He believes that the Fed's rate hike cycle is nearing completion. In support of his words, Wilson cites the inversion of the yield curve of ten-year and three-month US Treasury bonds. Recall that this is one of the key indicators indicating the need for a reversal of the central bank's tight monetary policy to a softer one.

However, some experts do not share the optimism of the Morgan Stanley representative. Currency strategists at UBS Global Wealth Management are confident that a reversal in the Fed's policy is unlikely, since the inflation rate in the US remains high. Against this background, the central bank will have to raise the rate until inflation recedes, the bank emphasizes.

The current situation puts pressure on the dollar, which, despite the current tension, is gradually strengthening. Against this background, the EUR/USD pair has been declining for the third consecutive day, continuing to struggle with the pull of the downward trend. On the morning of Tuesday, November 1, the EUR/USD pair was cruising near 0.9911. This is a difficult situation for the euro since it has to resist negative macro data.

Recall that reports on inflation in the eurozone were published on the evening of Monday, October 31, which again demonstrated its sharp rise. As a result, the inflation rate in the region soared to a new historical high, and the euro bloc economy lost its growth momentum. According to analysts, consumer prices in the EU rose by 10.7% in October 2022 compared to October 2021, exceeding forecasts. In the third quarter of this year, the volume of production in the eurozone decreased to 0.2% compared to the same period last year.

According to experts, the current situation is aggravated by a sharp increase in the European Central Bank's interest rates. At the same time, many analysts believe that the central bank should continue to actively fight inflation, which includes raising rates. It is possible that after the recent rate hike, the ECB will raise it again by 75 bps at the next meeting, which is scheduled for December 15. However, such a scenario is still in question, as well as a possible pause in the process of raising rates by the Fed.

Some analysts do not expect dovish decisions from the US central bank, although the current situation requires revision. According to experts, the aggressive tightening of the monetary policy contributes to the early onset of a recession in the United States, as well as a large-scale drop in treasury state bonds and stocks over the past few years. Take note that as rates rose and the economic downturn that followed the tightening of the monetary policy, the markets were gripped by a crisis. It was followed by an increase in the number of defaults, which seriously hit investors. In the current situation, the leading central banks will have to solve the issues that provoked such problems.

The current situation significantly affected the dynamics of the EUR/USD pair, provoking a correction at the end of September. However, the pair is gradually returning to a relatively stable course. According to experts, a new round of risk appetite in the markets will save the EUR/USD pair from further decline. At the same time, experts expect a New Year rally on the US stock market and the growth of risky assets in the near future.

 

GBP/USD: dollar and pound in the ring. Waiting for the last knockout?

The British currency has cheerfully started November, but experts fear that its ardor will fade in the near future. The prerequisites for this are economic instability in the UK and the long-term strengthening of the US currency, which is not going to give up its position.

Sterling ended October on a negative note, losing 1% shortly before the decisive meeting of the Federal Reserve, which will end on Wednesday, November 2. According to its results, an additional increase in the interest rate by 75 bps is expected. The implementation of such a scenario will be the first step for the Fed to slow down the pace of rate hikes starting in December 2022, economists believe.

The past month was a time of recovery for the pound, experts believe. Against this background, the GBP/USD pair gained 3%, simultaneously reaching an impressive 1.1646. In many ways, this improvement is due to the curtailment of the economic policy of Liz Truss, the former prime minister of Great Britain, and her resignation. However, it was not only the rejection of the "mini-budget" that helped GBP get out of the price hole. The expectation of positive changes in the Fed's policy played a significant role. In addition, at the end of October, the US currency weakened.

At the beginning of the last month of autumn, the pound behaved cautiously, occasionally trying to rise. On Wednesday morning, November 2, the GBP/USD pair was trading at 1.1513, significantly retreating from the previous high positions. This was facilitated by the strengthening of the greenback, which continues its victorious march in the global market.

According to currency strategists at Bank of America (BofA), in the short and medium term, the dollar will still be the leader. Analysts are confident in the dollar's dominance. However, the implementation of such a scenario can dramatically limit the recent recovery of the pound. A similar development is likely with the next increase in the Fed's interest rate, according to BofA.

By the end of 2022, the market expects an additional rise in the Fed rate (the total volume of these increases is 135 bps). At the same time, by the first quarter of 2023, the peak of the federal funds rate will be 5%, BofA is confident. The bank believes that the Fed's decision in November will provide significant support to the greenback. According to John Skeen, currency strategist at Bank of America, at the moment the US currency is at 40-year highs. At the same time, "the strength of the dollar will remain at such levels at the beginning of 2023," the expert emphasizes.

The current sterling losses are due to the release of positive macroeconomic data from the United States, which provided significant support to the greenback, but pushed the pound and the euro into the abyss. According to reports, business activity in the US manufacturing sector (PMI) soared to 50.4 points in October (against the expected 49.9 points), and the ISM business activity index in the manufacturing sector rose to 50.2 points, exceeding the projected 50 points. Before the release of the reports, the GBP lost almost 100 points, falling sharply to 1.1550. In the future, sterling lost almost all the positions won earlier and fell into a downward spiral, reaching 1.1455. Later, the British currency managed to recover, but the consequences of such a "knockout" received from the dollar seriously affected the further dynamics of the GBP.

However, UOB currency strategists remain positive about the GBP/USD pair, believing that the pound will stand until the 1.1440 level is broken. If this stronghold falls, then sterling will be in a price hole for a long time. However, this is unlikely now, the UOB emphasizes. Earlier, analysts predicted the pound's growth to 1.1700, but the chances of this are melting every day.

According to experts, in the coming weeks, the euro and the pound will remain under pressure against the USD. Nevertheless, market participants do not lose hope for the pound's recovery in the long term. Many large hedge funds have raised their bets on the pound's growth, although asset managers have reduced their short positions against the GBP. However, the majority of market participants, taking into account the positive changes in the UK fiscal policy, support the position of hedge funds. At the same time, many analysts believe that optimism about the pound is justified.

 

USD slides down after Fed interest rate hike

The US currency reacted negatively to another Fed funds rate increase following the FOMC meeting. USD slumped significantly, losing many of its earlier gains. However, market players and analysts believe that the US dollar is strong enough to recoup its losses.

USD decreased late on Wednesday after the Federal Reserve increased the interest rate by 75 basis points. Fed policymakers stated that future rate hikes, which are aimed at decreasing galloping inflation, could be smaller than the previous ones.

Analysts noted that the market regarded this statement as quite dovish. Investors assumed that the regulator will slow down the pace of rate hikes in the current situation. Many analysts believe that the Fed would increase the rate by only 50 bps in December.

While some market players expected the Fed to slow down monetary tightening significantly, these expectations were dispelled by Fed chairman Jerome Powell. At the press conference following the meeting he said that the Federal Reserve does not plan to slow down the pace of rate hikes. "It is very premature to be thinking about pausing," Powell added. The Fed chairman said the regulator will present a new summary of interest rate trajectory projections.

Furthermore, Powell pointed out the steady rise of the US dollar and called it "a challenge" for many countries. Expectations of an excessively high rate hike strongly pressured USD. Early on Thursday, November 3, EUR/USD traded near 0.9825. Earlier, the pair rose to 0.9832, but retreated slightly afterwards.

Market players hoped the Fed would slow down interest rate hikes this year and ultimately end the tightening cycle in the first quarter of 2023. However, the Fed's actions did not match their expectations. A 50 bps rate increase in December is the only likely policy adjustment the regulator can do.

Rising employment in the US became a key indicator signalling that the Fed would not soften their stance. According to the latest data by ADP, the US economy added 239,000 new jobs in October, well above 192,000 new jobs reported in September. The Federal Reserve uses such data to determine the level of inflation and interest rate adjustments. Strong US labor market data gives the Fed more room for maneuver, allowing the regulator to tighten its monetary policy more aggressively to fight soaring inflation.

Amid such developments, experts note that the US dollar rally can potentially continue in 2023, fuelled by concerns over a global recession and the hawkish Fed. FX strategists at Capital Economics believe that the Fed's tightening cycle is close to an end. The research firm's chief economist Jonas Goltermann predicts that the US dollar will continue to climb in the first half of 2023.

Goltermann believes that if interest rates reach their peak, it will not be an obstacle for a USD rally in the future. The economist said falling risk appetite in the global markets and rising demand for safe haven assets have given support to the US dollar. According to Goltermann, the US currency went up during earlier tightening cycles.

Earlier outlooks by some analysts saw the Fed increase interest rates up to 5% in 2023. Bloomberg predicts that the effective Fed funds rate could hit a peak of 5.1% by May 2023. Market players expect the key interest rate to decrease afterwards in the first or second quarters of the year.