One of the main themes of the second half of the week are the events related to the rapid rise in inflation in the US, which seems to translate both into the US dollar and the quotes of gold, silver or cryptocurrencies.
The latest CPI data showed that inflation in October rose more than expected to 6.2%, the highest reading since 1990, raising concerns that price pressures could weigh on the economy for much longer than previously expected. Expectations of earlier monetary tightening by the Federal Reserve have also resurfaced, with Fed funds rate futures raising the odds of a first full interest rate hike in July 2022, with another possibly in December 2022.
Dollar with the significant strengthening
It seems that the rise in inflation and the chances of faster interest rate hikes may have definitely strengthened the US currency. The US Dollar Index surpassed 95 points on Friday, climbing to its highest level since July 2020. However, Fed officials have dismissed discussions of interest rate hikes, but appear to be divided on the issue.
The major currency pair has fallen below 1.1500 and is at levels last seen in mid-July 2020. The euro to the dollar appears to have lost just over 1 percent this week. GBP/USD, on the other hand, has fallen below 1.3400 and the British currency to the USD appears to have lost 0.9 percent. Among the world's major currencies, there is not one to gain to the USD this week.
Precious metals and cryptocurrencies with rapid growth
A very clear increase in inflation in the USA woke up investors in the precious metals markets, where the prices of gold or silver clearly increased after the publication of the CPI. This week alone, the price of silver rose by nearly 5 percent, above USD 25 per ounce, while the price of gold seems to have increased by less than 2.5 percent, reaching the level of USD 1860 per ounce.
Cryptocurrencies, as a potential hedge against inflation in the US, also seemed to react with increases. Bitcoin reached a new all-time high near $69,000 after the inflation release, before falling as low as $63,000. What caused the drop? Investors may have realized some of the potential gains and wondered what the latest consumer price data meant.
Cryptocurrencies appear to have gained in value since July due to inflation concerns, dovish statements from central bankers and growing government approval and regulation and expectations for ETFs. However, expectations of higher interest rates could hurt risk-priced assets, including bitcoin, as cryptocurrencies have largely prospered in an environment of high inflation and low interest rates.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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