FX market in the spotlight
After a very busy week with numerous central bank meetings, the week is ending with a bearish mode. The dollar index continues its sideways movement around 96, while dollar/yen is heading south approaching the 113.00 round number. The euro rally peaked near $1.1350 and is now trading near $1.1300, while sterling has given up much of its post-BoE gains and is trading below $1.33. US futures are suggesting a negative open today.
Central banks sum up
The Fed‘s shift to a more hawkish stance hasn’t yet fully permeated the markets. Today’s speech by Fed Governor Waller is expected to shed more light on the Fed’s likely route towards a rate rise. Despite the FOMC’s decision, interest rates and rate expectations have actually decreased.
As expected, the ECB held rates steady. However, the bank made the announcement that PEPP would come to an end in March. But the ECB will increase its longstanding APP program to a monthly rate of EUR40 billion in Q2 from EUR20 billion now to try to soften the shock. Even if PEPP purchases have been on the rise recently, this still amounts to an monthly reduction of EUR40 billion in purchases.
The BoJ‘s two-day meeting finished with a hold decision that was dovish. Despite the decision to keep interest rates unchanged, the bank plans to progressively reduce its holdings of corporate bonds and commercial paper beginning in April.
As evidenced by the recent rate hike, the BoE is more concerned about inflation than Omicron concerns. The labor market is under more pressure. Business lunches must have increased in price and this has grabbed everyone’s attention it seems. Pill stated in November that “if the job market continues to be solid, interest rates will need to gradually climb in the coming months”.
The CBRT actually lowered interest rates on Wednesday, despite the fact that other central banks are considering or implementing rate increases in an effort to manage inflation. The Turkish lira plummeted to $17.1158, creating a notable move again.
Commodities and commodity currencies
In other markets, gold prices climbed above the $1,800/per ounce, creating the third consecutive green day. WTI crude oil price is struggling within a narrow range over the last days, failing to surpass $73.00/per barrel. Commodity currencies have been in a slight bearish move today.
