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19.10.202210:11 Форекс анализи и прегледи: DXY. Fed to raise rates to 9%

Exchange Rates 19.10.2022 analysis

The dollar's correction due to the growth of risk appetite is unlikely to last for a long time, as today the mood in the investor environment is dejected, and the US currency index turned up from weekly lows.

The index rose above 112.00 on Wednesday amid expectations that the Federal Reserve will continue to implement its aggressive plans to tighten measures to reduce inflation. Minneapolis Fed President Neel Kashkari's latest commentary suggests that interest rates may need to be raised above 4.75% if core inflation continues to pick up.

Exchange Rates 19.10.2022 analysis

The dollar also continues to prevail as a safe haven currency amid deteriorating global growth prospects. Earlier this week, it came under pressure, including amid solid earnings reports and a sharp turn in UK fiscal policy. The US currency remains stable against the euro and the pound, while a new high has been updated against the yen. The Japanese currency will fall to 32-year lows, despite the possibility of intervention from Japan.

However, today the Japanese central bank once again made it clear that it is not worth waiting for monetary support. According to Bank of Japan Governor Haruhiko Kuroda, monetary policy is not directed directly at Forex.

"It is advisable to maintain easing to support the economic recovery, as the uncertainty around the Japanese economy is extremely high," the official said.

At the same time, he made it clear that intervention against "excessive weakening of the yen was very appropriate."

As for other world currencies, the dollar weakened against the New Zealand and Australian counterparts. It is expected that the central banks of their countries will keep pace with the cycle of tightening the Federal Reserve's policy.

The Fed's attitude

Forecasts regarding the threshold of the US central bank rate hike vary. The increase, according to available estimates, can reach up to 5%, but this is not the limit. Judging by the new information that has appeared on the web, the rate hike may reach up to 9%, it all depends on how the inflation card will fall.

Someone sees the peak of inflation. Perhaps there are reasons to believe so, perhaps this is just a reflection of a great desire. Anyway, we'll find out about it soon.

Wall Street and the dollar index are now trading in line with expectations of a 1.5% rate hike. If inflationary pressure does not stop and price growth continues to go up, the Fed will have to raise the bar.

At the moment, a number of indicators, including Bloomberg Commodity Spot Index, indicate the passage of an inflationary peak. If so, then the dollar has no reason to conquer new heights. Given that the markets live by expectations, there may be a pullback of the US currency index from the current borders altogether, as investors will decide to bet on a more dovish approach of the Fed.

Rate hike to 9%

The new monthly report of Bank of America reflected the complete pessimism of investors regarding the prospects of the stock market and the growth of the global economy. A record number of respondents (83%) expect economic growth to weaken and corporate profits to fall in the next 12 months.

The lion's share of market professionals are set to continue the decline in stocks. It will be possible to talk about reaching the bottom only within the framework of 2023. All short rallies have been and will be held on Wall Street exclusively in the bear market.

The reversal of the currency and stock markets will occur only when the Fed refuses to raise rates further or, at least, slows down their increase.

The increase in interest rates to 9% was announced by the well-known investor Mark Mobius. This is the highest level in three decades. The US central bank will have to take such a step, because it needs to stop the record rise in consumer prices for 40 years, the investor believes.

It is advisable to raise the rate higher than the current inflation. Since it currently stands at 8%, the rate should be 9%, the billionaire explained in an interview with Bloomberg. He also made it clear that he does not expect a decrease in inflation in the coming months.

Natalya Andreeva,
Analytical expert of InstaSpot
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