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A very active week is ending for the financial markets as it contained many central banks sessions and important announcements.
The Fed in the USA on Wednesday decided to accelerate the reduction of the bond-buying program (tapering). The program will end in March instead of June as it was the previous decision. The Fed also mentioned that it may proceed to three interest rates hike into 2022 instead of one. All these actions are a defense against the high inflation that was announced at 6.8%. The sentiment is also hit by an aggravation of the relationships between the USA and China.
The ECB yesterday kept the interest rates unchanged at 0% but started the reduction of the Pandemic Emergency Purchase Program (PEPP) which will end in March, in straight alignment with the US monetary policy. It was a quite hawkish approach as the inflationary pressures became a big issue in the eurozone as well. The eurozone inflation in November was announced earlier today at 4.9% as the markets expected.
The Bank of England yesterday, was the first major economy that announced an interest rates hike, from 0.1% to 0.25%. The monetary policy in the UK remained unchanged though.
The Bank of Japan, earlier today, on the same page with the other central banks, announced the reduction of the bond-buying program from the next April and on which is significantly later than the Fed and ECB. The main reason is that Japan has still a relatively low rate of inflation.
The Swiss National Bank at its latest session did not change anything significantly as the monetary policy remained unchanged and it also kept the same interest rates at -0.75%.
The major stock markets turned to bearish during the last two days. The NASDAQ100 index is suffering more due to the bigger correction of the technological sector. The bond yields are also in a bearish movement (the US 10-year bond yield opened the week at 1.48% and it is now at 1.42%).
EURUSD (current price 1.1330) has managed to turn bullish mostly because of yesterday’s ECB session and Christine Lagarde’s speech. The tightening of the monetary policy in the eurozone was perceived by the markets as a more dynamic movement, compared with ECB, and helped the euro to recover. The US economic announcements had a negative impact (the retail sales and the PMIs were much below expectations) while the news in the eurozone was negative too, regarding the industrial production and the PMIs. The ECB’s tighter monetary policy may help the pair further to regain a bullish trend, especially above 1.1385.
GBPUSD (current price 1.3306) is bullish this week mostly because of the interest rates hike from the Bank of England. The unemployment rate in the UK was announced at 4.2%, below 4.3% which was the previous month’s rate and the inflation was announced at 5.1%, significantly higher than the 4.2% of the last month. The sterling seems stronger after all these and above 1.34 it may develop a solid uptrend.
USDJPY (current price 113.58) still maintains a bullish outlook this week despite the weakness of the US dollar and the drop in bond yields. This is most likely because Japan will delay the reduction of the bond-buying program more than the Fed and the other major central banks and this fact makes the Japanese currency weak. The milestone price is 114 because above this level, the pair has a good chance to accelerate it bullish course.
