The US FED preview November 2022
What message will the FOMC send to the markets this Wednesday?
- November +0.75% (75 basis points): It’s expected that the US FED will hike another 0.75% on Wednesday, this could be the fourth time in a row the Fed has increased interest rates by 0.75%
- December +0.50% (50 basis points): This Wednesday's FOMC statement may give clues about the FED plans for its December 2022 meeting; will the Fed step down from 0.75% to a December 0.50% rate increase?
- 4.75% - 5.00% target rate range: Will the Fed signal that the current target interest rate cycle range will hold at 5% or lower beyond Wednesday?
US Economic Developments since the last Fed meeting
- US Job growth was near to what markets had expected, jobs growth cooled slightly and unemployment remains near record lows
- US Consumer prices remain elevated, and core CPI was stronger in September
Hold on a minute… is the data sufficient to signal a slowdown in rate hikes?
- Without clear and solid data to support “slowing down” or “holding firm” the pace of rate hikes in either direction, then no change in Fed policy should be expected until the data can support that kind of decision
- The time will now be focused on the US macroeconomic data between the November 2, 2022 FOMC rate decision day and the December 14, 2022 FOMC meeting day
- The interest rate direction from December and into 2023 will be completely dependent on the next few weeks of US macroeconomic data
In the meantime, what about the USD?
High time for the US dollar to cool down for a while?
United States and Japan, same problem but opposite policies
The USD has made enormous gains against the major FX pairs over the previous months as the US FED held firm on its aggressive interest rate raising policy to push back the upward spike in inflation during 2021-2022.
At the same time, even though Japan is not immune to higher inflation, the Bank of Japan (BoJ) held firm by not moving too far away from its own policy of keeping its interest rate at one of the lowest in the developed world.
This opposing policy has created one of the greatest “trend following” trades in FX history.
The table below shows the 52-week percentage move for the USD against some of the world's developed and emerging FX.
It's clear that during this current economic cycle of higher global inflation and higher interest rates across most of the major developed economies, the USD has been the big FX out-performer.
What’s not so clear is when this trend will end
What to expect on Wednesday, November 2nd of September, 2022
USD pairs, precious metals, stock indices, and large-cap US stocks are expected to react to the FED’s upcoming interstate rate policy announcements.
- Since Citigroup is a large US bank, how will Citi stock price react to higher US interest rates?
- Will large banking stocks outperform or will the banking sector come under pressure from the effects of a slowing economy?
Key price levels to watch on potential asset movers during the FED meeting:
EUR / USD
The recent break above the channel trend line (chart 1) could be viewed as bullish over the short term (5 to 25 days) with longs keeping a close eye on the lower 0.9850 support area for signs of weakness in which a price move below the 0.9850 would indicate a resumption of the downward trend, however, provided the 0.9850s can prove a reliable support level, further upside towards an attempt at the 1.02s cannot be ruled out.
Gold price to remain under downside pressure if the USD continues to strengthen after Wednesday's US FED interest rate announcement?
Not investment advice. Past performance is not indicative of future results. Trading cryptocurrency may not be available depending on your country of residence.
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