20210928

<Markets Analysis>The Fed's Close is Imminent, Inflation Becomes a Threat Next Year

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After the monetary policy meeting in September, as expected, the U.S. Federal Reserve kept the benchmark interest rate unchanged at 0.25%. Although it did not give a precise start time for reducing debt purchases, the statement mentioned that the timing of monetary policy tightening is getting closer and closer. It implies that the scale of debt purchases may be reduced soon or even coming in November. Powell also mentioned that debt purchases was estimated to end in the middle of next year, but that does not mean that interest rates will start to increase. He emphasized that interest rates will not be raised before the end of debt purchases. The dot matrix shows that half of the officials believe that interest rates will be raised next year, earlier than how it was predicted previously.

Undoubtedly, for most major central banks, the unconventional monetary policy deepened by the epidemic has reached the time for normalization, and it is only a question of when it will begin. At present, inflation continues to rise due to supply chain issues and the rise of commodities. The OECD has just issued a warning that the inflation rate in G20 countries will be higher next year, reminding countries to take measures. It is worth noting that the organization also recommends maintaining a certain degree of policy easing and flexibility to continue to provide support for economic recovery. Since the epidemic will not clear up in a short time, Western countries have accepted coexistence with the virus and reduced the impact through vaccination. Under such circumstances, I believe that the European and American central banks will be slightly restrained at the beginning. The most worrying thing is that once inflation intensifies and the central bank has to speed up the collection of water, the financial market will experience turbulence.

The U.S. dollar fell from a high of 93.75 in late August and then fell to 92 in just 10 days. However, after the weak August non-agricultural data was announced, the U.S. dollar continued to rise after the ultimate fall. The U.S Dollar index even rose to 93.50 after the Fed's September interest rate meeting. During this period, the fundamentals of the U.S. dollar did not change much, and the two recent major adjustments of the U.S. dollar were supported between 91.75/92.00. The short-term upward pattern is still maintained, but the resistance above 93.50 is still heavy. The author continues to be slightly optimistic about the U.S. dollar, with 92.70, 92.30 and 91.70 as the key support below, which can be used as a reference and wait to absorb the US dollar. If loss of 91.70 will needs to be review again.


Patrick Law General Manager of Hantec Group

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