The volatility of the financial market intensified in September. The U.S. Federal Reserve continues to raise interest rates, the Russia-Ukraine war worsens European geopolitics, and the ad hoc intervention of the Bank of Japan in the market has caused sharp fluctuations in asset prices.

The U.S. Federal Reserve announced a rate hike of 0.75% as expected. Fed funds rate rises to the range between 3.00% - 3.25%, which is the highest since 2008. The bureau predicts that interest rates will rise to 4.4% by the end of the year. That is, the interest rates will be raised by a total of 1.25% in the remaining two meetings this year and will reach a peak of 4.6% next year. It is expected that the interest rates to remain high for a while and that is to tell the market not to expect interest rates to fall in the short term. Powell, the Chairman said that the bureau has a firm determination to bring inflation back to the 2% target level. Investors are worried that continuing to raise interest rates sharply will hurt the corporate earnings in the U.S., with a recession expected in early next year.

The exchange rate of the US dollar against the Japanese yen approached 146, prompting the Bank of Japan to intervene in currency markets again in 1998. Japanese Ministry of Finance official denies 145 is the bottom line for the exchange rate. Fumio Kishida, the Prime Minister said that if the exchange rate fluctuates excessively, he will continue to take action. The US dollar once fell back to the 140 level, but the strong US dollar and the confidence of investors in the Bank of Japan’s support for the Japanese exchange rate are not much. The yield on the 10-year U.S. Treasury bond has approached 3.8%. As the interest rate differential continues to widen, it is difficult for the yen to recover sharply. But the short-term trend will be very volatile.

Ukraine has conquered a lot of lost ground from the Russian army. Vladimir Putin, the President of Russia announced the partial mobilization order for 300,000 military-trained personnel and warned that he will defend territorial integrity. The tensions rise in Europe as a result. Europe's economy was already battered by the energy crisis. And the geopolitical deterioration pushes the euro lower, once dipping to around 0.9550.

The Fed maintains a hawkish monetary policy, pushing the US dollar holdings above 114. Non-US currencies were under pressure overall. Rising US interest rates drive capital inflows into US dollar assets. A strong US dollar will help the United States to pass on inflation to other countries, which is not beneficial to the global economy, and emerging new market countries are even more stressed. It is expected that there is still support in US dollars in the short term, but with a high risk. It is necessary to have stock management and stop loss when conducting investments and be careful of high-level loss.

Patrick Law

General Manager of Hantec Group