Welcome to our regular Monday recap of the most interesting events that affected our trading in the past week. And there were!
Last week was mainly marked by interest rates.
GBP
On Tuesday, statistical data was released regarding the unemployment rate in the United Kingdom. This turned out slightly more positive than expected and has maintained a good downward trend since February 2021 (current: 3.9%, previous: 4.1%). Declining unemployment rates suggest further tightening, although total hours worked are still below pre-pandemic levels.
The Bank of England raised interest rates by 25 basis points!
The BOE decided to raise rates to 0.75% on Thursday. A majority believed that policy should be tightened to reduce the risk of inflation settling in. Global inflationary pressure is expected to intensify significantly in the coming months.
The vote to raise interest rates suggested that the BOE was not trying to be too aggressive. Those who thought there would be a 50 basis point increase were duly disappointed. Last week's BOE meeting was dazzling with four votes for a 50 basis point hike, but the hawks began to waver. Neither voted for a 50 basis point increase this time, and the only dissenter was Cunliffe, who voted to keep the rate unchanged.
The full statement can be found here:
https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/march-2022
The market was pricing in a 40% chance of a 50 basis point rate hike, but apparently that was not even up for debate and the statement says the risks are on both sides.
As a result of the more conservative actions of the Bank of England, the British currency began to fall in the hour following the announcement.
USD
The US currency offered similarly interesting data.
Tuesday kicked off with a couple of statistics regarding the US Producer Price Index (PPI).
- Current: 0.8%, previous: 1.2%
The Producer Price Index (PPI) measures the change in the price of goods sold by producers. It is the main indicator of consumer price inflation and accounts for the majority of headline inflation.
This was followed by February retail sales in the US, which also did not turn out very well for the US currency.
- Current: 0.3%, previous: 4.9%
On the same day (Wednesday), the Fed decided to raise rates by 25 basis points. This is the first increase since 2018!
The Committee aims to achieve maximum employment and inflation of 2% in the long term. With appropriate monetary policy tightening, he expected inflation to return to its 2% target and the labour market to remain strong. The Committee also expects to begin reducing its holdings of Treasury securities and bonds at its upcoming meeting.
In assessing the appropriate monetary policy stance, the Committee would continue to monitor the impact of incoming information on the economic outlook.
Jerome Powell said at his press conference that the Fed continues to closely monitor the risks of further upward pressure on inflation and inflation is still expected to head lower in the second half of the year.
The dollar strengthened slightly in response to the rate hike, but took the opposite direction during the press conference.
The rate increase was apparently included in the price.
Watch the recording of the conference:
JPY
At the end of the week, the Bank of Japan (BOJ) decided to leave rates unchanged. This leaves it at -0.10% since December 2015.
The Bank has downgraded its overall assessment of the economy and will not hesitate to take further mitigating actions as needed in light of the impact of the covid-19 pandemic.
Currently, short- and long-term interest rates are expected to remain at or below current levels.
There is very high uncertainty about how developments in Ukraine affect the Japanese economy, prices through the markets, commodity prices, overseas economies.
Read the full report here:
https://www.boj.or.jp/en/announcements/release_2022/k220318a.pdf
The Japanese currency, however, experienced a steep decline last week due to the earthquake that struck northeastern Japan in the Fukushima region on Wednesday.
The Reuters news agency reported on Thursday that authorities have registered more than 100 injured. Earlier reports said two people were killed. Tens of thousands of households remain without power and several thousand without water.
What's in store for the current trading week?
The second half of this week will bring some interesting statistical data regarding manufacturing PMIs from the Eurozone and the UK. We can also expect the latest retail sales figures from the UK. On Thursday, the summit of European leaders will come again.
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