Daily Market Commentary 22nd September 2022

The Federal Reserve raised rates by a further 75 basis points, in line with expectations and for the third time in succession (75 point tranches). The Fed has reassured markets that they are committed to bringing back inflation to the target range of zero to 2%. The Fed has forecast inflation to go higher and remain for longer. This was not good news for equity markets, but a further boost to bond yields and the US Dollar. US 2 year bonds hit 4.1%, while 10 year jumped to 3.6%, supporting a US Dollar trading at 20 year highs. The EUR plunged to trade 0.9820, while the GBP crashed below 1985 record lows, to trade 1.1240.

The surging reserve crushed commodity currencies, with the AUD plunging to 0.6620, while the NZD crashed to 0.5850. Inflation and interest rates remains the controlling narrative on world currency, equity and bond markets. The Bank of England and the Bank of Japan will release their latest monetary policy in the next day. The Bank of England has an existential inflation crises and will therefore continue to raise rates aggressively, while the Bank of Japan has been able o control inflation and keep rates at record low levels. A recent spike in Japanese inflationary pressures ma lead to a change in BOJ policy?