2022-05-26 • Updated
Inflation (= meaning the generalized and continuous increase of prices in an economy) is a very important economic phenomenon, affecting practically all investments in financial assets in the capital market. Therefore, for investors and traders alike it is highly recommended to understand the dynamics of inflation and some of its causes. One of the causes that influences inflation is the level of economic activity. When an economy is heated, with very low unemployment and a sufficient demand pressure, prices tend to accelerate, causing inflation. This also occurs due to pressure for wage increases in the labor market, which causes companies to transfer these costs to the prices of their products and services. This increase in wages and prices, if strong, can therefore cause inflation.
A second cause of inflation can be exchange rate devaluation. With exchange/currency devaluation, imports become more expensive, and this can lead to an increase in prices in the domestic market for products that depend precisely on imports from abroad, reflecting on the entire economy. With exchange appreciation, in turn, inflation tends to fall. A third cause of inflation is considered to be supply shocks, representing an increase in the prices of important inputs (such as commodities), which tend to affect the entire economy as well, such as gasoline and petroleum-derived fuels. In any case, what are the main indicators of inflation in an economy? Usually these indicators involve the so-called 'consumer price indexes' which are collected by the statistics departments of each country.
In the FBS economic calendar, our traders can find some important indicators regarding inflation:
We see for example that the increase in the Swiss inflation rate between April 2021 (0.3%) and March 2022 (2.4%) appeared to have been (in part) a reflection of the devaluation of the franc (CHF) against its international peers, mainly the USD. In the chart below, we see the appreciation of the USD against the CHF in the period indicated.
We see for example that the increase in the Eurozone inflation rate between January 2021 (0.9%) and March 2022 (7.5%) appeared to have been (in part) a reflection of the devaluation of the Euro (USD) against its international peers, especially the USD. In the chart below we see the devaluation of the EUR against the USD in the period indicated.
During the Asian session on Wednesday, the USD/CAD pair rebounded after two days of losses, reaching around 1.3590. This uptick is fueled by a stronger US dollar and lower crude oil prices, which put pressure on the Canadian dollar. The decline in Western Texas Intermediate (WTI) oil prices to approximately $80.70 is attributed to...
The Australian Dollar (AUD) rebounds on Monday, despite a slight dip in the US Dollar (USD) and higher US Treasury yields. Investors are eyeing Australian monthly Consumer Price Index (CPI) data for February and US Gross Domestic Product (GDP) for Q4 2023. The AUD gains momentum as the ASX 200 Index rises, especially in mining and energy sectors. Additionally, the Aussie...
Gold prices rose on Monday as the US Dollar weakened amidst speculation about potential Federal Reserve rate cuts starting in June. This weakened Dollar was partly due to improved risk sentiment pushing US Treasury yields lower. Despite facing challenges from declining yields, gold prices recovered to nearly $2,170 per troy ounce, driven by the Dollar's weakness. Federal Reserve Chair...
Jerome H. Powell, the Federal Reserve chair, stated that the central bank can afford to be patient in deciding when to cut interest rates, citing easing inflation and stable economic growth. Powell emphasized the Fed's independence from political influences, particularly relevant as the election season nears. The Fed had raised interest rates to 5.3 ...
Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
Bearish scenario: Sell below 1.0820 / 1.0841... Bullish scenario: Buy above 1.0827...
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Don’t waste your time – keep track of how NFP affects the US dollar and profit!
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