Yen shines and Swissy surrenders
It has been a very volatile 24 hours as we have heard from several central banks. Last night, the Fed lifted rates by 0.75%, meeting expectations, but the outlook was more hawkish than expected. As a result of the Fed’s interest rate projections, stock markets in the US and Europe are lower today. Even though we have seen losses on equities, the S&P 500 is still above the 18-month low that was seen in the summer, so that suggests that sentiment is weak but not awful. This morning, currency traders were caught by surprise as the Bank of Japan snapped up yen as a way of supporting the currency. It was the first intervention by the BoJ since 1998, and their tactics worked as there is a broad rally in the Japanese yen, but it is off its peak. On the other side of the coin, the US dollar took a knock as the aggressive move in USD/JPY hit the greenback. In the last few hours, the dollar has recouped a lot of the ground it lost.
The Swiss National Bank ended its era of negative interest rates by lifting rates from -0.25% to 0.5%. Like other central banks, the SNB are determined to bring down inflation but on the run up to the meeting, the markets started to price-in a 100 basis points lift, and so the hike was considered to be a disappointment, and in turn there was a major fall in the Swissy. Continuing with the central bank bonanza, the Bank of England revealed a hike of 0.5%, which was broadly in line with forecasts but there was some speculation about a potential 0.75% increase. UK central bankers are divided as only five of the nine monetary policy committee members voted for a 0.5% increase. As we now know, the hike was far from a done deal and therefore traders are questioning the BoE’s ability to keep tightening policy. Sterling is now down versus the US dollar, which says a lot about sentiment.
Gold and silver were showing solid gains earlier today thanks to the weakness in the US dollar but now the metals are fractionally higher as the greenback has managed to recoup most of the ground it lost earlier. Oil is up over 0.9% as supply fears persist as the aggressive rhetoric from Russia has left energy markets rattled.