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Aggressive Fed Sends Dollar to Highest in Decad

The Federal Reserve hikes rates by 0.75% and signals another 1.25% by year end, sending the Dollar roaring ahead to record highs and sinking stock markets.

 

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  1. The US Federal Reserve hiked rates by 0.75% yesterday as expected, but signalled a strongly hawkish policy going forward, which has had a major market impact. The Fed has indicated a further 1.25% of hikes can be expected by the end of 2022, signalling an interest rate of 4.4% by 2023. Fed Chair Powell stated that inflation has not yet begun to fall, contradicting recent remarks by President Biden, and said that “nobody knows” whether higher rates will cause a recession or still allow a soft landing for the economy. Powell said that interest rates will need to be “at a restrictive level” for some time.
  2. The Federal Reserve’s strongly hawkish rhetoric and outlook on monetary policy caused the USD to roar ahead against every major currency except the strong Swiss Franc, with the EUR/USD currency pair reaching a low last seen in 2022, and the USD/JPY currency pair exceeding ¥145 for the first time since 1998, while the GBP/USD currency pair sees its lowest rate since 1985 close to $1.1200. Other currency pairs are seeing the Dollar’s strongest levels in years. There is a very strong, long-term bullish trend in the Forex market in favour of the US Dollar, which is most likely to continue to rise over the coming days, making it an interesting market for trend traders.
  3. The US 2-Year Treasury Yield has shot upwards, exceeding 4.11% for the first time in many years.
  4. Stock markets are firmly lower everywhere following the Fed release, with the Hong Kong Hang Seng Index reaching a new 10-year low price.
  5. The Bank of Japan has announced it will maintain its negative Policy Rate of -0.1% and gave no surprises in its Monetary Policy Assessment earlier. The Bank raised a threat of “stealth intervention ”in the Forex market as the Yen weakened and the USD/JPY exceeded ¥145 for the first time since 1998.
  6. The Bank of England and the Swiss National Bank will be giving their respective major policy releases today on interest rates and monetary policy.
  7. Daily new coronavirus cases globally dropped last week for the ninth consecutive week, giving rise to the hope that the pandemic is finally over in any meaningful sense. Earlier this week, President Biden declared the pandemic “over”.
  8. It is estimated that 67.9% of the world’s population has received at least one dose of a coronavirus vaccination, while approximately 7.8% of the global population is confirmed to have contracted the virus at some time, although the true number is highly likely to be much larger.  
  9. Total confirmed new coronavirus cases worldwide stand at over 618.6 million with an average case fatality rate of 1.06%.  
  10. The rate of new coronavirus infections appears to now be significantly increasing only in Slovakia, Taiwan, and Russia. 
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