One of the main stories of the year for the financial markets and the financial services sector is the rate hikes put in place by the Federal Reserve. So far this year, the central bank has increased interest rates by 225 basis points to lower high inflation.
The alteration in the monetary policy was an option for the Fed because the economy was experiencing positive economic data and high employment. However, the picture is starting to look very different now.
Yesterday, the crude oil price increased to a previous high, and traders are waiting to see if the price will be able to break into a higher price wave. The US stock market, on the other hand, continues to decline. US indices have formed their third consecutive day of declines and continue to be in the red this morning.
US Dollar Index - Technical View
Yesterday, the US dollar index reached 109.23, the highest this year and the highest in over 20 years. The price did, however, see a significant decline yesterday afternoon after the release of the US Services and Manufacturing PMI. The PMI report is considered to be a major economic indicator.
This morning, the dollar is rising again and attempting to regain lost ground from yesterday. Currently, the index has increased by 0.17% since market open and is priced at 108.78.
Bitcoin - Technical View
Bitcoin has declined by 0.70% this morning, yet it increased by 2.57% over the past five days and is down 13% over the past ten days. According to analysts, the current fall of the cryptocurrency market, in general, was triggered by the severe decline in Bitcoin, which pulled down all the major altcoins.
Currently, the price remains within the reoccurring price range, which we have been seeing since mid-June. Cryptocurrency investors are likely to continue being influenced by the monetary policy decisions of global central banks such as the Federal Reserve, European Central Bank, and Bank of England. If interest rates continue to rise, it can lower investor confidence further, specifically amongst retail investors.
Currently, economists are undecided on whether the Fed will remain hawkish throughout the remainder of the year. For example yesterday, Jan Hatzius, advised Bloomberg evening that the Fed will most likely lower the speed and magnitude of interest rate hikes. However, others such as the Fed’s Neel Kashkari, have advised that the regulator needs to continue hiking interest rates to bring down inflation.
USD/JPY - Technical View
The USD/JPY saw a 170 PIPs (Point in Price) decline in the price which brought the exchange rate to a weekly low. However, the price has since retraced upwards and is attempting a price correction. So far, the price has corrected by 49% and formed two consecutive highs at 136.90. Traders are eager to see whether the price will break through the most recent resistance or support level.
The latest developments related to the US economic data were released yesterday afternoon. This has been the main price driver as investors are anxious that the US economy may start to contract due to pressure from inflation and simultaneously higher interest rates.
The Manufacturing PMI declined from 52.2 points to 51.3 points, although analysts expected a decrease to only 52.0 points. The Services PMI fell significantly to 44.1 points which is the lowest in over 2 years. The issue for the US is not only that the index significantly declined but also that the figure is below the benchmark of 50.0. The figure indicates that the US economy will continue to decline over the next month.
The US also released the latest New Home Sales figure, which fell by 12.6% and is the lowest it has seen since 2016. Again, this is most likely a result of higher mortgage payments and retail banks unwilling to lend due to the higher risk. The Richmond Manufacturing index also declined and was lower than expected. In total, the US released 4 economic statistics and all of them recorded declines.
Investors may potentially refrain from opening new trading positions until news from the symposium in Jackson Hole is published, and until the US releases its latest GDP figures. The US Federal Reserve Chairman Jerome Powell will also speak at the symposium.
The market is hopeful that Mr. Powell will touch on the pace of the interest rate hikes for the remainder of the year and comment on the prospects for a global recession amid deteriorating energy markets, inflation, shortages, and weakening economic data.