FXTM information and reviews
FXTM
93%
OctaFX information and reviews
OctaFX
92%
XM information and reviews
XM
91%
FXCC information and reviews
FXCC
90%
Libertex information and reviews
Libertex
89%
FxPro information and reviews
FxPro
88%

Fed slams on the brakes, BoE decision next


16 June 2022 Written by Marios Hadjikyriacos  XM Investment Analyst Marios Hadjikyriacos

The Federal Reserve raised interest rates by 75 basis points, in line with market pricing. Chairman Powell attributed the powerful move to the latest sizzling inflation reading and concerns that inflation expectations were starting to drift beyond the 2% target, which forced the Committee to roll out the big guns. Interest rate projections were recalibrated higher to almost hug market pricing. The median Fed official sees rates at 3.38% by December, slightly below what money markets envision. Powell argued that a recession can still be avoided, especially if there’s any help from geopolitical events, but was adamant that the Fed will keep its foot on the brakes until inflation abates. 

Fed goes big 

There was a sense of relief in the markets after the Fed chief stressed that 75 bps moves are unlikely to be the norm moving forward. That remark took the shine off the dollar and helped equities bounce back as some of the uncertainty faded, although both moves have already retraced. 

All told, the Fed is trying to frontload as much tightening as possible while the sun is shining. The issue is that the Atlanta Fed GDPNow model revised growth for Q2 down to zero yesterday after data showed retail sales aren’t even keeping pace with inflation. If this is validated by official data, it would imply the US economy is on the verge of recession following the contraction in Q1, opening up another can of worms for Fed officials. 

Traders overestimating BoE? 

The central bank baton will pass to the Bank of England today. Markets are certain a rate increase is on the menu but are split on the size, assigning equal chances to 25 bps and 50 bps moves. Admittedly, the most likely outcome is a 25bps rate increase coupled with cautious commentary around the economy. 

BoE officials were already on red alert about recession risks at their last meeting back in May. Some policymakers even supported a ‘pause’ in rate hikes moving forward despite high inflation, and since then incoming data have confirmed their concerns with PMI business surveys signaling a sharp slowdown in growth while the unemployment rate moved higher.  

The BoE has not raised rates by 50 basis points so far in this cycle while the British economy was humming along - why would it do so now that storm clouds are on the horizon? This spells downside risks for sterling, especially if the central bank opens the door for a pause during the summer, forcing market pricing to adjust. 

SNB surprises, BoJ also in focus

The Swiss National Bank took markets by storm today after it raised interest rates by 50bps, overcoming even the most aggressive forecasts. It dropped the phrase that the franc is ‘highly valued’, foreshadowing less intervention in currency markets going forward and propelling the franc higher in the process.

Turning to the ECB, the special meeting yesterday turned out to be a dud. It was more a statement of intent that the ECB is serious about addressing fragmentation risks, without much substance. But it worked, with the spread between Italian and German yields narrowing in the aftermath as many speculators were flushed out of the fragmentation trade. 

Early on Friday, the spotlight will turn to the Bank of Japan. A parade of BoJ officials made it clear lately that no policy shifts are coming, preventing market participants from even speculating about any changes. A reaffirmation that the BoJ remains committed to yield curve control would likely spell more pain for the yen, which has been slaughtered by rising yields abroad and a terms of trade shock stemming from energy prices.

By XM.com
#source

Share:


Related

Dollar smiles after impressive jobs data reinforces Fed bets
Dollar smiles after impressive jobs data reinforces Fed bets

Despite several leading indicators warning about a loss of momentum in the US economy, the labor market is still firing on all cylinders according to the latest jobs report...

8 Aug 2022

Stocks drift, dollar firms as markets brace for US jobs slowdown
Stocks drift, dollar firms as markets brace for US jobs slowdown

Recession jitters were abound on Friday even as markets got off to a steady start following a few wobbles along the week. PMI indicators around the world painted a grim picture for services activity, suggesting major economies...

5 Aug 2022

Wall Street bounces, shrugs off Taiwan tensions and hawkish Fed
Wall Street bounces, shrugs off Taiwan tensions and hawkish Fed

Geopolitical tensions and recession fears appear to have faded into the background for investors as shares on Wall Street staged another impressive rally on Wednesday...

4 Aug 2022

Fed hawks lift yields out of the doldrums, yen pauses for breath
Fed hawks lift yields out of the doldrums, yen pauses for breath

Bond markets were reeling and interest rate futures were being recalibrated after Federal Reserve officials questioned the recent scaling back of rate hike expectations by investors...

3 Aug 2022

US-China tensions dent appetite as yields crumble, dollar creeps higher
US-China tensions dent appetite as yields crumble, dollar creeps higher

Risk sentiment took a knock on Tuesday as it emerged that the Speaker of the US House of Representatives Nancy Pelosi is on her way to Taiwan, defying China’s strong advice against...

2 Aug 2022

Crude Oil Is Afraid of Geopolitics
Crude Oil Is Afraid of Geopolitics

The commodity sector remains rather tense on Monday; Brent is trading at $102.75. Global geopolitics is what investors are focused on right now. Any complications in this area muddy the water...

1 Aug 2022


Forex Forecasts

HFM information and reviews
HFM
87%
IronFX information and reviews
IronFX
86%
FXCM information and reviews
FXCM
85%
Pepperstone information and reviews
Pepperstone
84%
NordFX information and reviews
NordFX
83%
LegacyFX information and reviews
LegacyFX
82%

© 2006-2022 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.