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The U.S. dollar jumped to a new all-time high against a basket of currencies on Wednesday, extending gains after the Federal Reserve raised interest rates and combined that with a more hawkish tone than what was anticipated.
Most emerging market currencies sank against the dollar on Wednesday with pairs USD/ZAR and USD/CNH breaking above multi year highs seen earlier this month.
The central bank of Japan (BoJ) left its interest rates unchanged at very low levels on Thursday, as expected, indicating that it is under immense need for accommodative monetary policy due to issues arising from high commodity prices and the aftermath of the COVID-19 pandemic. The central bank has kept the short-term rate in negative territory for over seven years, amid a marked slowdown in the Japanese economy.
Sentiment in the crypto markets remains overall negative, with Bitcoin trading close to the $18,8K level and Ethereum trading below the $1,300 mark while the global cryptocurrency market cap was standing at $947 billion according to Coingecko as at 07:00 AM GMT today.
On Thursday, investors will be looking forward to the Bank of England (BOE) Monetary policy summary and interest rate decision where a 50-basis point increase is expected. Later in the day, the US will be releasing data on its current account and weekly unemployment claims while the Eurozone will publish results from a consumer confidence survey
The euro fell further away from dollar parity on Thursday, following a move by the Fed to raise interest rates by 75 basis points on Wednesday, in line with market expectations.
In his speech, Chairman Jerome Powell gave further hawkish signs, indicating that the bank will continue with its aggressive monetary policy stance, even risking pressure on economic growth and the labour market, as it struggles to cope with rising inflation.
The EUR/USD pair is trading close to 0.9820 Thursday at 07:10 AM GMT.
Despite receiving support from recent geopolitical uncertainty deriving from Ukraine, gold prices are still trading close to their lowest levels since May 2020 due to recent strength in the dollar, a 75-basis point increase in the Fed’s benchmark interest rate and hawkish comments that cement expectations that U.S. interest rates will end the year well above 4% - their highest level in over 14 years.
Investors are now on watch for further escalations in the ongoing conflict in Ukraine, as Russian President Vladimir Putin signed a decree calling for partial troop mobilization in the country, and raised the threat of using nuclear force.
WTI Oil prices fell even further on Wednesday, along with many other commodities, approaching the $80 per barrel mark. This move followed a recent strength in the dollar which hit a 20-year high and the Fed interest rate statement where an increase by 75 basis points on the central banks’ benchmark rate was announced.
The speech that followed by Fed president Jerome Powell added even more pressure to the energy sector as it signified a willingness to risk weakness in the economy and the labor market, in order to tackle rising inflation.
Oil traders could be focusing on the Russia-Ukraine conflict, as recent escalation could further disrupt Russian crude supply.
Major stock market indices like the US 500, the US 30 and the US tech 100 all fell by a bit more than 2% on Wednesday and further declined by Thursday morning, moving closer to lows last seen in June.
This move came at the end of the Feds two-day meeting, where the central bank lifted its policy rate by 75 basis points for the third time to a 3.00-3.25% range. Most market participants had expected such an increase however, policymakers also signalled more large increases to come in new projections showing its policy rate rising to 4.40% by the end of this year.
Rate cuts are expected to begin only in 2024 while inflation is expected to stay well above the Fed’s 2% target for at least the next two years.
A relatively limited number of quarterly results are coming in towards the end of the week when on Thursday Accenture and Costco are publishing their respective numbers.
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