Last week, the last major event in 2022, the four major central banks, the U.S. Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank, all discussed interest rates successively, and all raised interest rates by 0.5% this week, in line with market expectations, but the market is paying close attention to their constant changes The post-meeting statement to judge future trends. The attitudes of the four central banks all maintain their anti-inflation stance, but at the same time, the market is worried that the pressure to continue to raise interest rates will increase in the future economic recession.
First of all, Fed Chairman Powell hinted that although inflation may have peaked, the interest rate hike cycle is not over yet. Compared with the 0.75% interest rate increase in the previous four meetings, the Fed raised interest rates by only 0.5% this time. In addition to being the last rate hike in 2022, it also marks a slowdown in the Fed’s interest rate hikes. At the same time, inflation has increased from 9.1% in June It has fallen back to 7.7%, and the threshold for further substantial interest rate hikes of 0.75% or more in the future is too high. In the future, interest rates will only be raised by 0.5% at most.
Next year focus will turn to recession theme
The European Central Bank also chose to reduce the rate hike from 0.75% expected by the market to only 0.5%. Anyone who bet on the ECB’s policy shift by raising interest rates by at least 0.5% to curb inflation would be wrong. The market estimates that the European Central Bank will need to raise interest rates by 0.5% on February 2 and March 16 next year, raising interest rates to 3.5%. At the same time, the European Central Bank also confirmed that it will start reducing its bond portfolio of 5 trillion euros in March next year and take more measures to fight inflation. As for the Bank of England’s 6-3 vote to raise interest rates, it also raised interest rates by 0.5% with the Federal Reserve and the European Central Bank, raising the benchmark interest rate to 3.5%. This is the 9th consecutive rate hike by the Bank of England. However, because inflation is still high, interest rates may need to be raised in the future. It is estimated that the interest rate will be raised by 0.25% in February next year to bring the interest rate to 3.75%. The language of several major central banks sent a clear message to the market that the pace of rate hikes in the coming quarter has slowed but the end of the rate hike cycle is not yet reached.
However, the focus of the market next year will turn to the theme of recession, among which employment and the labor market are worth noting. If the non-agricultural data is satisfactory this year, the market regards it as the central bank’s conditions to speed up and increase the pace of interest rate hikes. However, next year, when the central bank has generally raised interest rates by 3-4%, the ideal non-agricultural data will reflect that the recession has not yet appeared or has been delayed. The U.S. dollar index seems to have a short-term rebound at 103.5 at the end of the year. However, since the rate hikes by the central banks are similar until the rate peaks, it is expected that the obvious resistance will be at 107.7. In the next two weeks, trading will be quiet and only technical trends will dominate . Euro short-term support at 1.0480, resistance at 1.0730.
Senior Forex Commentator
Chen Jianhao