- The US Federal Reserve yesterday completed a fully-expected pivot towards a more hawkish monetary policy due to the impact of resurgent inflation. The Fed announced that the pace of its asset purchase taper would be doubled, so tapering will fully end in March 2022 when the Fed will completely halt bond purchases. The Fed also indicated that following the ending of tapering its expects to hike rates by three increments over the rest of 2022 to reach a rate close to 1% by the end of the calendar year.
- Although the Fed’s measures announced yesterday were expected, markets did react. Stock markets rose, with the S&P 500 Index ending the day near its record high made recently. The US dollar initially traded higher, but ended the session lower and continues to trade downwards, although this seems to have more to do with strong overhead technical resistance than any of the FOMC’s announcements. Commodities such as precious metals and crude oil also rose following the release.
- Today is a huge day in the Forex market, as we have not only the impact of the Fed’s pivot but also central bank monthly policy releases due from the European Central Bank, the Bank of England, and the Swiss National Bank. This may bring volatility in the euro, British pound, and Swiss franc.
- The omicron coronavirus variant is continuing to spread rapidly, most notably in the UK which recorded its highest ever number of new confirmed daily coronavirus cases yesterday with an increase of more than 20%. The raw numbers looks set to be huge, and the government is pushing a massive, fast campaign of booster shots in the hope of keeping hospital admissions manageable. The omicron variant is becoming dominant right now in the UK, Denmark, and Norway. The latest data from South Africa suggests that omicron is much more transmissible but less severe than other variants, but that two vaccine doses offer only limited protection.
- The Forex market reacted relatively mildly to yesterday’s data releases, although we are now seeing more directional movement and general volatility. The Japanese yen is currently the weakest major currency, while the commodity currencies are relatively strong, especially the Canadian dollar.
- British inflation data came in higher than expected yesterday, showing an annualized increase of 5.1% which is the highest seen in 10 years.
- Canadian inflation data came in exactly as expected, showing a relatively low 0.2% month on month increase.
- US retail sales data came in considerably lower than expected yesterday at a month on month increase of only 0.3% compared to the anticipated 0.8%, although this seemed to have little effect on the market.
- New Zealand GDP data showed a quarterly drop of 3.7%, slightly better than the expected decrease of 4.1%.
- Australian unemployment data came in much better than expected, with the unemployment rate falling to 4.6% when it had been expected to be 5.0%.
- The Turkish lira is falling to a new all-time low, with USD/TRY trading above 15 for the first time ever. Although the Turkish lira looks very tempting for trend traders to short, the overnight swap rates and spreads imposed by brokers are so high that it is hard to do this profitably.
- Last week saw the first global weekly fall in new confirmed coronavirus cases after two months in which cases rose steadily.
- It is estimated that 56.4% of the world’s population has received at least one dose of a coronavirus vaccination.
- Total confirmed new coronavirus cases worldwide stand at over 272.5 million with an average case fatality rate of 1.96%.
- The rate of new coronavirus infections appears to now be increasing most quickly in Australia, Canada, Denmark, Finland, France, Italy, Kenya, South Korea, Laos, Nigeria, Norway, Poland, San Marino, South Africa, Spain, Switzerland, and the UK.