Last week, the last major event of 2022, the four major central banks, the US Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank, discussed interest rates. 0.5%, which was in line with market expectations, but the market is paying close attention to their constant changes The post-conference 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 concerned that the pressure to keep raising interest rates will increase in the coming economic downturn.
First off, Fed Chair Powell hinted that while inflation may have peaked, the cycle of raising interest rates isn’t over yet. Compared to the 0.75% interest rate hike in the previous four meetings, this time the Fed raised interest rates by just 0.5%. In addition to being the latest rate hike in 2022, it also marks a slowdown in Fed interest rate hikes. At the same time, inflation rose from 9.1% in June to 7.7% and the threshold for further substantial interest rate hikes of 0.75% or more in the future is too high. increased by 0.5% maximum.
Next year the focus will be on the topic of the recession
Even the European Central Bank has chosen to reduce the rate hike to just 0.5% from the 0.75% expected by the market: it would be a mistake to bet on the ECB’s policy change to raise rates by at least 0.5% to curb inflation. The market estimates that the European Central Bank will have to raise interest rates by 0.5% on February 2 and March 16 of next year, bringing them to 3.5%. At the same time, the European Central Bank also confirmed that it will start reducing its bond portfolio by 5 trillion euros in March next year and take further measures to fight inflation. As for the Bank of England’s 6-to-3 vote to raise interest rates, it also hiked interest rates by 0.5% with the Federal Reserve and European Central Bank, bringing the benchmark interest rate to 3.5%. However, since inflation is still high, interest rates may need to be raised in the future. It is estimated that the interest rate will be increased by 0.25% in February next year 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 has not yet been reached.
However, the focus of the market next year will turn to the theme of the recession, notable among which are employment and the labor market. If the non-farm data is good this year, the market considers the conditions of the central bank to accelerate and increase the pace of interest rate hikes. However, next year, when the central bank generally raised interest rates by 3-4%, the ideal non-farm data will reflect that the recession has not occurred yet or has been delayed. The US dollar index appears to have a short-term rebound to 103.5 at the end of the year, however, as rate hikes by central banks are similar up to the rate peaks, the obvious resistance is expected it will be at 107.7. In the next couple of weeks, trading will be quiet and only technical trends will prevail. Short-term support for the euro at 1.0480, resistance at 1.0730.
Senior forex commentator
Chen Jianhao
