Octa’s Research: U.S. Dollar Weakens, Although Inflation Is Still High

Consumer Price Index (CPI) and Core Consumer Price Index data for February 2024 will be released by the U.S. Bureau of Labor Statistics on Tuesday, 12 March, at 8:30 a.m. ET. This timing is approximately one week before the next meeting of the U.S. Federal Reserve scheduled for 20 March.

Interest rates are expected to decline in 2024, with most of the cuts anticipated in the year’s second half. According to the CME FedWatch Tool, markets predict five cuts by December 2024, possibly bringing short-term rates just above 4% by year-end. Meanwhile, inflation, which peaked in mid-2022 and then declined sharply before summer 2023. However, the rate of decline has now slowed down. There are signs of increasing monthly inflation in early 2024, with the headline CPI projected to rise by 0.4% for February and by 0.3% when excluding food and energy, known as core CPI. This results in annual inflation hovering near or above 3%, compared to the Federal Reserve’s 2% target.

Octa analyst notes that the Fed is considering reducing interest rates—a shift from 2023’s focus on rate hikes. However, cutting rates too soon may lead to faster price increases if it boosts spending. The Federal Reserve is not as worried about a major jump in inflation but wants to prevent any lingering inflation, especially from services like housing, which they are closely monitoring. According to the latest meeting minutes, officials expressed optimism about the success of the Fed’s policy in reducing inflation rates despite cautioning against hasty policy adjustments but emphasising that future rate hikes were likely over. He also said that this explains why the Federal Open Market Committee might delay rate cuts in early 2024 to monitor the situation closely instead.

If inflation exceeds forecasts, the U.S. dollar is expected to rise due to potential delays in rate cuts. Conversely, if inflation falls below forecasts, it is likely to decline relative to other currencies. The EURUSD pair may rise, with a close above 1.0960 required to reach the next target of 1.1080.

About Octa

Octa is an international broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services already utilised by clients from 180 countries with more than 42 million trading accounts. Free educational webinars, articles, and analytical tools they provide help clients reach their investment goals.

The company is involved in a comprehensive network of charitable and humanitarian initiatives, including the improvement of educational infrastructure and short-notice relief projects supporting local communities.

Octa has also won over 70 awards since its foundation, including the ‘Best Educational Broker 2023’ award from Global Forex Awards and the ‘Best Global Broker Asia 2022’ award from International Business Magazine.