Bailey speech: Bank rate may have to go up further

 Bank of England (BoE) Governor Andrew Bailey is delivering his remarks on the policy outlook and responding to questions from the press following the bank's decision to hike the policy rate by 75 basis points to 3%.

Key takeaways

"If we do not act forcefully now, it will be tougher later."

"Bank rate may have to go up further."

"We think bank rate will have to up by less than priced in markets."

"We are increasing bank rate because inflation is too high."

"Low and stable inflation is the bedrock of a stable economy."

About Andrew Bailey (via bankofengland.co.uk)

"Andrew Bailey previously held the role of Deputy Governor, Prudential Regulation and CEO of the PRA from 1 April 2013. While retaining his role as Executive Director of the Bank, Andrew joined the Financial Services Authority in April 2011 as Deputy Head of the Prudential Business Unit and Director of UK Banks and Building Societies. In July 2012, Andrew became Managing Director of the Prudential Business Unit, with responsibility for the prudential supervision of banks, investment banks and insurance companies. Andrew was appointed as a voting member of the interim Financial Policy Committee at its June 2012 meeting."

Malaysia: BNM could pause its hiking cycle in November – UOB

 Bank Negara Malaysia (BNM) could make an impasse in its tightening cycle at the November 3 event, suggests Lee Sue Ann, an Economist at UOB Group.

Key Quotes

“Given that inflation expectations are anchored to official targets and risks to the domestic growth outlook are tilting to the downside, we believe BNM will tread more cautiously”.

“We expect BNM to take an intermittent pause to assess the effect of its cumulative 75bps rate hikes to date, domestic policy outcomes, as well as higher external risks and weaker global outlook. As such, we expect the OPR to be left unchanged at 2.50% at the coming Nov meeting”.

EUR/JPY Price Analysis: Still scope for a move to 144.00

 

• EUR/JPY comes under some pressure and fades two daily gains in a row.
• There is still room for a potential rebound to the 144.00 region.

EUR/JPY seems to have met decent resistance around daily highs near 142.30 at the end of the week.

The continuation of the bounce off last week’s lows remains on the table in the very near term. That said, the cross could therefore extend the bullish attempt to the weekly top at 144.04 (September 20), which is deemed as the last defense for a move to the 2022 peak at 145.63 (September 12).

In the meantime, while above the key 200-day SMA at 135.84, the constructive outlook for the cross should remain unchanged.

AUD/USD descends to its lowest level since May 2020 amid blowout USD rally to 20-year top

 

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• AUD/USD drops to its lowest level since May 2020 amid broad-based USD strength.
• Bets for more aggressive Fed rate hikes, elevated US bond yields underpin the buck.
• The risk-off mood further benefits the USD and weighs on the risk-sensitive aussie.
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The AUD/USD pair continues losing ground through the first half of the European session on Friday and drops to the 0.6565 area or its lowest level since May 2020.

The US dollar catches fresh bids on the last day of the week and hits a new 20-year peak, which turns out to be a key factor exerting downward pressure on the AUD/USD pair. The Federal Reserve struck a more hawkish tone on Wednesday and signalled that it will undertake more aggressive rate increases to cap inflation. This, in turn, remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the greenback.

In fact, the yield on the rate-sensitive two-year US government bond touched a fresh 15-year high and the benchmark 10-year Treasury note jumped to its highest level since 2011 on Thursday. Meanwhile, investors remain concerned that rapidly rising borrowing costs will lead to a deeper global economic downturn. This, in turn, tempers investors' appetite for riskier assets and is further underpinning demand for the traditional safe-haven buck.

Apart from this, economic headwinds stemming from China's zero-covid policy and the risk of a further escalation in the Russia-Ukraine conflict, have been fueling recession fears. This is seen as another factor contributing to driving flows away from the risk-sensitive aussie. With oscillators still far from being in the oversold territory, the fundamental backdrop supports prospects for an extension of the depreciating move for the AUD/USD pair.

Market participants now look forward to the release of the flash US PMI prints, due later during the early North American session. This, along with the US bond yields and Fed Chair Jerome Powell's speech at an event in Washington, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities heading into the weekend.

USD strength to persist into early next year – Rabobank

 In the view of economists at Rabobank, the US dollar is set to remain well supported for several months with the hawkish position of the Fed underpinning the attraction of the greenback as a safe haven.

Scope for further dips in EUR/USD below parity

“As the Fed still has a lot of work to do in taming price pressures and ensuring that inflation expectations are well anchored into the medium-term, it can be assumed that the FOMC will not be ready to relinquish its hawkish position just yet. Since this will impact risky assets, we see risk that USD strength persists into early next year.”

“We expect the USD to remain the favoured safe haven relative to either the JPY or the CHF in view of higher US short-term interest rates.”

“Given also that the eurozone is facing a difficult winter which includes the possibility of energy rationing for some businesses, we see scope for further dips in EUR/USD below parity.”

BOE’s Pill: All inflation forecasts are dependent on very volatile gas prices

 

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Bank of England (BOE) Chief Economist Huw Pill is testifying on the bank’s Monetary Policy Report (MPR) before Parliament's Treasury Committee on Wednesday.

Also read: Bailey speech: Confident BOE will respond to price shock

Key comments

Goldman Sachs UK inflation forecasts are mechanical implication of wholesale gas markets.

Goldman Sachs forecasts illustrate how much market prices have changed since BOE prepared Aug inflation forecast.

Some of rise in gas prices has reversed since Goldman inflation forecast.

All inflation forecasts are dependent on very volatile gas prices.

Inflation forecast also depends on machinery by which wholesale gas prices translate into retail prices.

Politicians are considering transmission of wholesale gas prices to consumer.

Seems clear to me we will see changes in this area.

Inflation impact of future fiscal stimulus depends on details.

Supporting household incomes will boost demand, leading to slightly stronger inflation.

I would expect headline inflation to decline in short term.

Implication for inflation at monetary policy relevant horizon is unclear, given lack of detail.

Very short-term impact on government measures on inflation may not be most important thing for BOE.

Must emphasise importance of BOE inflation target as anchor, not consider new regime.

We are here to ensure fiscal policy does not generate inflation.

We think output measures of GDP are better measures of activity, as less distorted by problems with trade figures.

Hopefully quality of trade data will improve over time.

US Dollar Index Price Analysis: Another visit to 105.00 remains on the cards

 

• DXY reverses the earlier bull run to the 106.50/55 band.
• The resumption of the selling bias could extend to 105.00.

DXY leaves behind Tuesday’s strong advance and sparked a corrective downside soon after hitting new 3-day peaks in the mid-106.00s on Tuesday.

Tuesday’s bounce did not clear any up barrier of note and thus leaves the index vulnerable to further weakness in the very near term at least. On this, the dollar faces the tangible chance to slip back to the multi-week lows in the 105.00 region (August 2) in the short term. This initial area of contention remains propped up by the proximity of the 55-day SMA, today at 104.84.

Furthermore, the broader bullish view in the dollar remains in place while above the 200-day SMA at 99.62.

BITCOIN (BTC/USD) PRICE CHART: HOURLY TIME (JANUARY 2021 – FEBRUARY 2021)

Bitcoin has been on the backfoot since timing another record on January 8, tumbling from $42,000 to beneath $29,000 in January alone. While theoretical lunacy was occurring somewhere else, well-known revenue in Bitcoin appeared to blur, in any event immediately, and the biggest digital currency by market cap looked defenseless against additional misfortunes.

In my past Bitcoin standpoint update, we featured an assortment of obstruction from the $35,000 to $36,000 region which we noted may see Bitcoin bit by bit drain lower except if broken. Indeed, the hindrance was immediately thrown away after Mr. Musk's intercession. Accordingly, what seemed to be imposing opposition was broken and Bitcoin got away from the arrangement of lower-highs and lower-lows that were starting to frame a bearish example on the graph. Thus, the specialized break started by Tesla's Chairman may have permitted Bitcoin to dodge further decreases.

A move past the January 29 high could see BTC/USD drive even higher, with ensuing opposition around the $40,000 mark – which corresponds with the January 14 pinnacle – and the record-breaking high around $42,000. 

Then again, uphold from the $30,000 to $28,000 territory stays a significant milestone for bulls. Should value break underneath the zone, BTC could quicken descending as help is moderately inadequate until the Fibonacci level around $24,230. On account of ongoing increases, earlier opposition around the $35,000 may likewise go about as help to go ahead.

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