Forex Today: Fed Starts Rate Hike Cycle

The Federal Reserve voted 8 to 1 to raise its interest rate by 0.25% for the first time in years, signaling a series of rate hikes that is expected to see the US end 2022 with a rate of 1.9% and then to 2.8% by the end of 2023. Fed Chair Jerome Powell made some tough talk about inflation being too high and the Fed being ready to do what is necessary to bring it down, but analysts see real danger ahead with inflation at 7.9%, giving a negative real interest rate of 7.4%. However markets reacted quite positively, with stock markets mostly higher, while the US Dollar sold off somewhat after initially spiking up.The Russian invasion of Ukraine is well into its third week, with the Russian advance clearly stalled although Kiev has imposed a special curfew. Talks are continuing between Russia and Ukraine and have apparently become more realistic and constructive. However, yesterday President Biden called President Putin a “war criminal” after Russian forces apparently bombed a building sheltering as many as 1,000 civilians.Stock markets closed higher yesterday almost everywhere, with the American market reacting positively to the Fed’s release, while Asian markets continue to advance very strongly following China’s statements yesterday pledging to support its stock market.The Forex market is dominated by a weak Japanese Yen, influenced by the Bank of Japan’s pledge to continue monetary easing until its inflation target of 2% is reached. The USD/JPY currency pair continued to rise yesterday to trade at a new 6-year high above JPY119 and looks likely to rise higher still, although it did peak at a key resistance level at JPY119.12. The commodity currencies (CAD, AUD, NZD) are relatively strong.

Canadian inflation data came in slightly higher than had been expected yesterday, at a month on month increase of 1.0% compared to an anticipated 0.9%. This puts the annualized Canadian inflation rate at the 30-year high of 5.7%.US retail sales data came in much lower yesterday then had been expected, showing a monthly increase of only 0.2% compared to an expected 0.9%.New Zealand GDP data came in slightly lower than had been expected, showing a quarterly increase of 3% compared to an expected 3.3%.Australian employment data came in a little stronger than expected, showing the unemployment rate falling from 4.2% to 4.0% compared to the expected 4.1%.The Bank of England will today release its Monetary Policy and Official Bank Rate data, which is expected bring a unanimous rate hike of 0.25% to a new Bank Rate of 0.75%.Hong Kong is seeing a dramatic, record-breaking increase in coronavirus deaths, with more than 65% of over-80s unvaccinated amid a dramatic spread of infection. Hong Kong is currently recording a case fatality rate of more than 4.5% and is showing the highest per capita death rate of any country during the entire pandemic. The spread of the coronavirus on mainland China has triggered the government to impose lockdowns which are affecting tens of millions of citizens and forcing some companies to halt operations, endangering crucial supply chains.Daily new coronavirus cases globally rose last week for the first time since January, suggesting that the omicron variant is not ready to disappear yet.It is estimated that 63.8% of the world’s population has received at least one dose of a coronavirus vaccination.Total confirmed new coronavirus cases worldwide stand at over 464.4 million with an average case fatality rate of 1.31%.The rate of new coronavirus infections appears to now be increasing only in Australia, Austria, Bhutan, Cyprus, China, Finland, Germany, Greece, South Korea, Laos, Luxembourg, Switzerland, Tonga, the UK, Vanuatu, and Vietnam.