J.Powell reinstated that he is determined to bring inflation below 2% and will probably raise the interest rate by 0.5% for the next two meetings, bringing the rate to 1.83% by the end of September. The FED actions might be done at the cost of triggering a recession. He said: “If the economy performs about as expected,” Powell said, “it would be appropriate for there to be additional 50-basis point increases at the next two meetings.”Powell acknowledged that he probably should have raised rates from near-zero levels before March 2022, when it started the tightening cycle. The soft landing or not may depend on other factors beyond FED control as geopolitical events, supply chain bottlenecks, or the Shanghai lockdown being out of FED control.
Hong Kong's end of QE is to be closely monitored.
Despite its US$ 466 billion foreign reserve and ample aggregate balance of HK$ 338 billion, the financial stress is mounting. This week we have seen, for the first time since 2019, the USD/HKD pair reach the high-end and the trading band (7.85) as a sign of investors selling HKD to buy USD and enjoy risk-free carry trade as the interest cash rate different is still wide :
- LIBOR Overnight : 0.83%
- HIBOR Overnight : 0.04435%
The carry trade activity will continue to drain liquidity on the market until the overnight HIBOR rate meets the overnight LIBOR rate; then, you can start watching the real estate market as the banks will have no choice but to raise their lending rate. DBS Bank (Hong Kong) predicts the HIBOR 1-month rate to reach 2% before the end of the year.
What’s in the pipe?
- University of Michigan consumer sentiment, Friday
USD/JPY @ 128.78 - bullish trend
EUR/USD @ 1.0401 - Bearish trend
GBP/USD @ 1.2203 - Bearish trend
AUD/USD @ 0.6887 - Bearish trend
USD/CNH @ 6.8051- Bullish trend