The Swiss National Bank followed the Fed and hiked rates 75 basis points, coming out of a negative interest rate environment to positive 0.50%, surprising many. The Bank of England raised rates 50 basis points to 2.25%, surprising no-one, although there were a few hoping for a greater increase. UK inflation is rampant, at just below 10%, and the BOE recognised that the UK was already in a recession. The question now, is just how deep and how long? The energy crises continues unabated, aggravated by the Ukraine war, which shows no sign of ending anytime soon. The GBP collapsed further below 1985 lows, falling to 1.1210, while the EUR slumped to 0.9810. Europe remains in deep economic trouble and this will quickly spread to social and political turmoil.
The Fed war on inflation looks determined, with QT now in full swing, which will attack inflation if implemented as projected. Reducing the balance sheet and cutting monetisation of Federal fiscal debt will have an impact on inflation, but will also take a toll in the bond market and ultimately the heavily distorted labour market. The all important US 10 year bond yield surged to new 10 year highs, breaking above 3.7%, providing an attraction for investors and support for a strong US Dollar.
Commodity currencies continue to suffer the surging reserve, with the AUD falling below 0.6600, while the NZD plummeted towards 0.5800. NZ Trade data released yesterday made for grim viewing. Exports have remained steady but imports are exploding and the deficit is spiralling out of control. NZ is a trade dependent nation and these are worrying numbers. Flash PMI data from Australia, Europe and the US may have some market impact, when released during Friday’s trade.