The U.S. Dollar is trading in stronger ranges due to speculation that the Federal Reserve will not hesitate in hiking interest rates tomorrow by 75 basis points and could even surprise by going as far as 1.0%.
Overview
While we do not believe the 100bps move will occur, global markets are all negative with acceptance of further monetary tightening ahead that is aimed at cooling down the economy to bring down prices. The Federal Reserve officials are all in consensus that higher rates are needed and that the Fed must continue until real data significantly changes the tide for consumers. Although the bonds market indicates that there is growing fear of a “hard landing” for the economy, the housing market has revealed resilience. U.S. 10-year treasury bond yields went up to 3.5%, the highest since 2007. Meanwhile, Housing Starts increased surprisingly in August with a 12.2% expansion when only 0.3% was estimated. We have been getting mixed signals on the economy for a while, so we will see how it all plays out tomorrow when initial reactions tend to be short-term.
What to Watch Today…
- No major economic events are scheduled for today
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EUR ⇓
Although the euro is down, there has been good news in terms of countries curbing the impact that the energy crisis will have on their economic activity as the colder weather periods arrive. European natural gas prices dropped as Germany passed legislation earmarking billions towards gas purchases to avoid shortage.
Additionally, the Netherlands passed a stimulus package for households vowing support if the going gets rough on energy. Additionally, stockpiling has increased, and it currently passed the five-year average. We still hope there is room for Euro to mount a comeback based on improved fundamentals and better news on the war front.
GBP ⇓
The pound is down ahead of the Bank of England’s meeting on Thursday, likely one with further hawkish action but a mood signaling that recession is coming. After a period of grief and ceremonies to honor Queen Elizabeth II, the U.K. is back to figuring out how to invest while also lower taxes. Expect a tough week of figuring out if Sterling will fall or have any way to hit the breaks on its depreciation.
