European inflationary pressures; U.S. Fed's steepest interest rate hike since 1994; Africa to be Europe's new gasman?; UK to face potential "trade war" against the European Union; Aussie government increases minimum wage rates the most since Global Financial Crisis in 2008; and Japanese Zen, do we all need it?
USD: Largest Interest Rate Hike in over 25 years
On the 15th of June 2022, the Federal Reserve approved the largest interest rate increase in over 25 years. This snowballed into the expectation of target federal fund rate to be 3.4% by this year's end. It looks as if the Fed is attempting to slow down demand and hopefully lower inflation to the desired 2.0%. The number of US weekly jobless claims was lower than anticipated, and homebuilding is currently at a new low of 13%.
ZAR: The German-African natural gas initiative & the South African dilemma
Many German companies are eager to finance African initiatives to produce natural gas. German Chancellor Olof Scholz, as part of his world tour to foster new economic partnerships with potential natural gas providers, swung by a few African countries. South Africa continues to struggle with being caught in the middle of the Russian war scandal, as all BRICS nations share the same pool of resources, such as oil. Fuel prices therefore have been exorbitantly high as the primary import of South Africa is Russia.
EUR: ECB to Brawl It Out Against Fragmentation
The European Central Bank (ECB) seeks to cap borrowing costs for the Schengen zone's most debt-troubled states. The ECB furthermore seeks to enact plans via a new purchase scheme to fight fragmentation, which is a widening gap between the yields paid by Germany and those of lower-rated countries such as Italy. ECB chief Madame Lagarde's most recent press conference in the Netherlands gave us a clear indication that helping budgets isn't the priority, but taming inflation is.
AUD: Australian Government to Make Highest Minimum Wage Raise in 16 years
The Westpac-Melbourne Institute index of consumer sentiment fell for the seventh month in a row due to interest rates and surging inflation. On a positive note, the Aussie government is expected to raise the national minimum wage in order to cater for families that battle to cope with new increased costs of living. Reserve Bank of Australia has made it clear that further monetary tightening is yet to come, after them having increased the Aussie cash rate by 50 basis points to 0.85%, which many speculators say is twice as initially predicted.
GBP: Economic output continues to reduce with harrowing local headlines of potential "trade war"
Martin Beck, Chief Economic Advisor of EY, optimistically shared that UK economic growth is likely to rebound in the third quarter, despite what quite frankly has been a steep uphill. UK's GDP contracted by 0.3% in May after dipping by 0.1% in March. What's more, is the British government is to propose new legislation that would discard certain rules that govern post-Brexit trade with Northern Ireland, which many currency analysts warn as a declaration of trade war with the EU, perhaps with hopes of a pyrrhic GBP victory.
JPY: Typical Japanese Zen - Keep Interest Rates Low, & Monitor Impacts on Forex Rates
The Bank of Japan (BOJ) has sustained its position with ultra-low interest rates, with the investment thesis of keeping borrowing costs at "present or lower" levels. In May, Japan had its worst single-month trade deficit, by about 2.3 trillion Yen, due to increasingly expensive commodity prices, which therein have led to the Yen depreciating in value, making the future uncertain. The BOJ remains calm and hasn't, unlike many other Central Banks, made any aggressive moves.
Sources: Wallex Technologies Pte, Ltd.; Real Vision
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