The Federal Reserve Chairman confirms at least two more interest rate hikes in 2023. However, the Bank of England's path is less certain, triggering high volatility. Economists advise that global monetary policy will likely increase significantly over the next 6 months. As a result, global equities are correcting as the pressure of consumer demand is likely to increase.
When monitoring both European and US indices, all assets are in the red during this morning’s futures session. The NASDAQ has declined by 1.90% over the past 24 hours, the German DAX is down by 1.60%, and the French CAC is down 1.10 % today alone. As mentioned above, the main reason for the bearish price movement is due to potentially higher interest rates and a higher possibility of at least a “technical recession”.
The currency market tends to see higher demand during low investor sentiment and poor stock market conditions. This morning, the US Dollar is the best-performing currency so far. However, the currency is still in a clear downward trend pattern. This week so far, the best-performing currency is the Euro and the Euro Currency Index. However, this will likely change if the Bank of England increases interest rates by 0.50%. This would make the BoE the most hawkish central bank among the G7.
GBP/USD - Interest Rate Hikes Looming
The price movement of the GBP/USD is being pulled into two directions due to uncertainty from UK investors. On the one hand, the economy is experiencing high inflation and is most likely to experience a base rate as high as 6.00%. This is much higher than other competitors, including the Federal Reserve and the European Central Bank. However, on the other hand, the UK is likely to experience a recession and lower economic activity. This morning, the Pound is declining against all currencies, but this may change after the Bank of England rate decision and press conference.
The price of the Pound is yet to show a clear direction because investors are yet to be certain how the Bank of England is likely to react. Most analysts believe the monetary policy committee will be split, with some members voting for 0.50%, others for 0.25%, and one member voting for a hold. However, if interest rates do not rise by 0.50% this month, most analysts believe it will come in August. Overall, the market will price 0.75% in two months unless the governor gives unexpected indications this afternoon. Currently, investors have priced into the market a 0.25% hike.
The Federal Reserve Chairman, on the other hand, is being seen as mainly dovish. Mr. Powell advised investors that the regulator will likely hike a further 0.50%, but hikes will be less frequent. Investors are also contemplating if we will see two further hikes if inflation declines over the next two months.
Due to the exchange rate forming large impulse waves in both directions, analysts will look for the breakout and clear wave to determine the longer-term trend. If the Bank of England opts for a more hawkish hike and the Pound is supported, analysts will be hoping for the price to break above the 1.27845 mark to obtain clear indications.
Bitcoin
The developments above seem pretty dim for equities and consumers; however, the asset experiencing a solid trend is Bitcoin. Over the past 48 hours, the price of Bitcoin has risen more than 14%, taking the asset to a 69-day-high. BlackRock and other well-known institutions are triggering the bullish price movement and increased demand, advising they are pursuing the possibility of creating a Spot ETF for Bitcoin. This means more prominent investors will be able to speculate on the price movement of Bitcoin without having to own the underlying digital currency.
The total market capitalization of the cryptocurrency market has increased in the past 24 hours by 3.77%. This has taken the whole market capitalization level to $1.18 trillion. The market share of Bitcoin is also on the rise, reaching more than 49% over the past week. This is a 10% increase compared to 2022’s lows. Today, Bitcoin’s dominance has risen by almost 0.20%. The only concern for investors is that higher interest rates will pressure investors and may trigger a selloff trend as smaller investors look for cash options.
Summary:
- Global equities are declining due to more interest rate hike expectations for the rest of the year. The NASDAQ has declined by 1.90% over the past 24 hours, and the DAX is down by 1.60%.
- Most analysts believe the BoE will be split, with some members voting for 0.50% and others for 0.25%.
- Mr. Powell advises the regulator will likely hike a further 0.50%, but hikes will be less frequent.
- Over the past 48 hours, the price of Bitcoin has risen 14%, taking the asset to a 69-day-high.
- BlackRock is triggering the bullish price movement after advising they are pursuing the possibility of creating a Spot ETF for Bitcoin.
