The Fed made it clear yesterday that they are willing to risk recession, but they are not willing to let the inflation reading run hot hence they increased the interest rate by 75 basis points rather than 50 basis points which they didn’t previously point out. The Fed Chairman has clarified to traders and investors that their future monetary is very much data-dependent. Market players should expect future interest rate hikes anywhere between 50 to 75 basis points. Looking at the dot-plot, it becomes clear that the Fed will likely increase the interest rate by 50 basis points in every meeting until the rest of the year.
As we mentioned yesterday, the Fed has a serious reputation problem now. Firstly, they called inflation a transitory matter, allowed it to run hot and failed to scale back on their dovish monetary policy in a timely manner. Now, they are desperate to put a leash on inflation at every cost, and traders are nervous that their desperation to lower inflation could lead them to make another policy mistake. For instance, if you look at their latest guidance, they revised their expectations for inflation and unemployment. They dialled down their growth forecast, which is a perfect recipe for a recession.
Nonetheless, the Chairman is confident he has the right tools to control inflation. He justified his hawkish action by pointing out the growth figures for the quarter and strong consumer, both of which are printing terrible numbers. For instance, if one looks at yesterday’s retail sales number, it was no short of a disaster and made it clear that consumers are reluctant to spend. Americans are dipping into their savings to handle the rising prices, and this is evident by the recent drop in the personal savings rate, which fell to its lowest level since 2008.
With Federal Reserve’s decision done and dusted, the focus today will be on the Bank of England’s Monetary policy meeting, which will be taking place today. The bank will announce its monetary policy decision at noon London time, and it is widely anticipated that BOE will have no choice but to follow in the footsteps of the Fed and hike interest rates once again. However, market players aren’t expecting an interest rate hike of 75 basis points from the BOE as the bank doesn’t have the same flexibility as the Fed. What is anticipated from the BOE is an interest rate hike of 50 basis points and nothing more than that. This is because the UK is facing a problematic, depriving situation; GDP numbers are shrinking and falling at the fastest pace in more than a year. Traders are worried higher inflation and aggressive monetary policy adopted by the BOE will take a much bite of the economic growth in the coming months compared to what we have now, which is already showing a dire situation for the UK. According to the latest figures, the UK’s wage growth is slowing, and the unemployment rate is rising.
The British pound is likely to be highly volatile against the dollar especially, and the path of the least resistance is skewed to the downside.
The precious metal scored gains on the back of the Fed’s monetary policy decision, which is purely because the Fed’s reputation is under question, and traders are wondering if the Fed has what it takes to lower inflation. Nonetheless, today we do see traders booking some profit. At the same time, the dollar index picks up more steam while investors wait for other central banks to announce their monetary policy decision, such as the BOE, the Swiss National Bank, and the Bank of Japan.
Overall, there is still no clear trend for the gold price, and the yellow metal continues to trade in an ugly range. We would need a new catalyst for the precious metal to break out of its current range, which runs from $1794 to $1874.
The crypto king remains out of favour among investors and traders, although yesterday’s Fed decision eased off some nerves as they expected the BTC to violate its support of 20K. As long as the support continues to hold, we still have some hope for fewer losses in the future. Speculators believe that floor has come out of the BTC price, and the price may continue to move lower, and we are likely to see more significant bids coming near the 15K price level now.
It is important to note that both Ethereum and Bitcoin prices are extremely oversold on the daily and weekly time frame as per the RSI, which means that bargain hunters could be jumping in very soon.