Author: Steve Tee
US
Another wild price action took place during US Interest Rate announcement, as many may have not expected. A gut feeling was whispering to me on Monday itself whereby, if US Dollar were to rally prior to the US Interest Rate announcement, it seems uncannily like a bull trap. The rally of US Dollar to break out to the upside from its miserable consolidation state was stated in my previous fundamental analysis. When it comes a tad-bit too soon, definitely something fishy is happening.
A prior rally may indicate and show bullishness and positivity in the marketplace, getting speculators and investors in as 25 basis point would directly translate to strength in the US Dollar. However, on the day of US Interest Rate announcement, DXY tanked close to the 100.000 area. Manipulation? Maybe.
Plus, Friday will be Non-Farm Payroll announcement. Again, as mentioned in previous report, this week will be wild as there are 2 hard hitting US news drivers. Even though this short-term heavy fluctuation and volatility may confuse many, pay close attention to what’s brewing in US domestically. High delinquencies in mortgage and hire purchase repayments, big box retail giants closing stores by the dozens nationwide, big tech and MNCs laying off employees in hundreds and thousands, national debt at all time highs and not forgetting, credit card debt also at all time highs. Janet Yellen’s press conferences will be helpful too.
Euro Zone
It is not a choice but an obligation when Federal Reserve raise rates, the rest would somewhat have to follow. ECB announced 50 basis increase, from 2.50% to 3.00%, putting Euro in strong footing. Inflation in Euro Zone still sits are a fairly high at 8.5% as of January 2023 and Christine Lagarde isn’t down throttling at all. Breaking News Market tweeted a statement by ECB President Lagarde stating, “Don’t doubt about our determination to achieve 2% inflation” is as hawkish as ever. 2% is a long way down from 8.5 and I wonder how much more rate increase she will need to push on to get there. Probably 6%? Growth will be hindered as Breaking News Market tweeted a statement by her, “We anticipate that growth will remain weak”. When you contract money supply and increase cost of borrowing, yes economy will slow down. At least, gas supplies are not in troubled waters as before in 2022.
Great Britain
Also raised rates by 50 basis points, but lack luster. Why you may ask? Firstly, UK’s inflation rate is at 10.7% and it’s the highest level since 1982. This will put a lot of pressure in cost of living and destroy purchasing power. Tax increases are seen as another factor that will alleviate UK’s economic growth. Higher prices of goods and service, plus higher taxes, it is not looking good. Britain may also have local debt issues similar to US. It was reported by The Guardian that “UK borrowers may struggle to repay debt as economy worsens” and this will be fuelled by interest rate hikes.
