Central Banks’ Rate Decisions Weigh on Global Markets, US Dollar Holds Near 6-Month High
Global financial markets faced significant pressure on Monday, September 18, 2023, as traders anxiously awaited interest rate decisions from the US Federal Reserve, the Bank of England, and the Bank of Japan. The majority of stock markets slid in anticipation of the announcements, with concerns over persistent inflation and rising oil prices adding to investor jitters.
The US Federal Reserve is expected to hold rates steady on Wednesday, which has led to a drop in the dollar. However, the Bank of England is predicted to implement another rate hike a day later due to UK's stubbornly high annual inflation currently at 6.8%.
Investors are also closely monitoring the Bank of Japan’s policy decision this week. Amid these expectations, the U.S. dollar remained steady against a basket of currencies, hovering near a six-month high.
"The balance of risks does tilt a little to the dovish side in terms of the dots, given recent rhetoric. Still, this shouldn't significantly dent the dollar's longer-run bullish trend given the FX market's apparent focus on relative growth dynamics," said Michael Brown, market analyst at Trader X.
Oil prices extended gains as key producers Russia and Saudi Arabia limit output. With output unlikely to pick up any time soon, prices could break back above $100 soon. Observers will be closely watching comments by Saudi Energy Minister Prince Abdulaziz bin Salman at a conference on crude policy later Monday.
On the corporate front, shares in troubled developer China Evergrande (HK:3333) experienced a dramatic fall of more than 25 percent after news broke about the arrest of an unknown number of staff in China. However, it managed to bounce back through the day to end only slightly lower.
In other currencies, the euro was up 0.1% against the dollar following last week's interest rate hike by the European Central Bank to 4%. Meanwhile, the yen was up about 0.1% against the dollar as traders expect the Bank of Japan to leave rates on hold at -0.1% on Friday.
The pound was slightly lower as traders anticipate the Bank of England to raise rates by 25 basis points to 5.5% on Thursday. In cryptocurrencies, Bitcoin rose 2.71% to $27,253, reaching a more than two-week high.
With a week full of central bank interest rate decisions ahead, market volatility is expected to remain low as traders withhold from making significant risk moves.
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