The Federal Reserve continues to “price in” the next expected rate hike by the US Dollar, Indices, and gold. According to JP Morgan, who spoke to Bloomberg this morning, the market is shifting towards a 75-basis point hike.
Previously economists and investors were thought to be equally split between a 50 and a 75-basis point hike. This was due to the level of inflation and the price of gasoline declining, triggering some economists to believe the Fed may hike by 0.50%, not 0.75%.
However, inflation is expected to rise again due to the new Chinese lockdown. This is likely to result in supply chain disruptions. In addition, OPEC is also attempting to increase the price of oil by limiting the output.
As a result, most investors have now switched to pricing in a 75-basis point hike. This decision from OPEC will most likely also affect oil prices. Are you shifting your strategy to commodities?
Traders are now turning their attention to the US employment figures, which will be released this afternoon. nonfarm payrolls figure is expected to decline to 295,000, which is still positive for the employment sector. The unemployment rate is expected to remain at 3.5%, and the Average Hourly Earnings to be 0.4%.
One of the most shocking developments this morning is the decline in global bonds for the first time since the early 1990s. This is most likely a result of the higher rate hikes being put in place by policymakers at a record pace and the current risk of recession in certain regions.
It should be noted that this can strongly impact financial instruments such as gold and the stock market, which tend to compete with bonds.
USD/JPY - Technical View
The USD/JPY has been one of the most traded currency pairs amongst derivatives traders this year. This is due to the strong and decisive trend, which seems to be never-ending.
The price of the USD/JPY has again increased above previous highs and is now at its highest level in over 24 years. Most traders continue to favor the US Dollar in the longer term. However, traders should also be cautious of possible corrections and retracements.
Over the past 24 hours, the Japanese Yen has declined against the Dollar, Euro, and Pound. This indicates that the price movement is not solely related to the strengthening of the Dollar but also to the weakening of the Yen.
The main reason for the Yen decline has been the dovish stance taken by the Bank of Japan, which is being overpowered by the Fed, and the negative effect of Chinese Lockdowns. China is Japan’s largest trading partner.
One of the positive factors for the Japanese Yen is that there is economic growth. Even though Gross Domestic Product figures are weak, they remain positive, unlike other developed economies such as the US, UK, and Eurozone.
However, the intensification of the global recession and the transition of several world economies into recession can put serious pressure on Japanese industry, which is strongly reliant on exports.
GBP/USD - Technical View
GBP/USD has declined for a sixth consecutive day as we approach this afternoon’s nonfarm payrolls and Unemployment Rate announcement. After many weeks and debates, the UK will officially have its new Prime Minister by Monday. Of course, the political uncertainty had also influenced the price of the exchange rate.
However, traders have noticed that the price has reached a previous support level which can be seen in March 2020 after US COVID lockdowns and October 2016 after the Brexit Referendum Vote. Traders are contemplating whether the price can again gain momentum or if the Dollar will continue to push the exchange rate lower.
The two candidates for the new UK Prime Minister are Liz Truss and Rishi Sunak. The new Prime Minister will face a similar scenario to the early 1970s, when the UK government was tasked with solving recession, high inflation, and plenty of labor unrest.
According to reports, the British industrial sector is still afraid of high inflation, reduced product demand, and unrest regarding salaries within the labor market. Currently, the volume of enterprise orders continues to fall, which does not add optimism.