Rate Changes Cause Forex Market Turmoil

  • Interest Rates Move Markets Early
  • The euro and the pound continue to struggle
  • Stocks jitter again as slide decline continues

It was a somewhat wild start to the day for the forex market. The rate changes saw the market go through a turbulent period early on before regaining some calm later in the European session. Interest rate increases in the US and UK played a role. The Swiss National Bank also hiked rates as Japan took the drastic step of intervening in the country’s foreign exchange market. This put other currencies into overdrive as the Euro and Pound slide continues. Equities also continued to be pounded, with major markets again in the red.

Traders take note of interest rate moves

Given ongoing inflation issues in the US and globally, rate hikes have been larger than expected. This still did not help dampen the movement felt when major rate hikes were announced. In the US, the Fed moved ahead with a 75 basis point hike and indications that it will continue raising rates to that figure in November. The UK also raised rates from 0.50% to 2.25% as expected. The Swiss National Bank (SNB) opted for a 75 basis point hike.

There is a widespread belief among policymakers that raising rates will counter the burning problem of inflation. However, some analysts are now beginning to question whether the moves are going too far in this direction after a pandemic period of very supportive moves. Some, including prominent investor Cathie Wood and Elon Musk, have recently commented on the risks of deflation.

No improvement for the euro or the pound

The fight continues for currencies other than the US dollar. The euro has once again fallen below parity and is sinking further. The common currency now sits at just $0.98 against the dollar. This point marks yet another recent low for the pair. Data from Europe was also not helpful. This has continued to contract as the entire region suffers.

The block is not alone. In the UK, the pound plummeted as the new government announced a series of bold economic reforms. The currency took the news and hit its new low against the dollar. The pair was trading at $1.11 at the time of writing, a multi-decade low representing losses of over 1.5% on Friday alone.

Stocks slide even further

Forex brokers and traders were not alone in their pain on Friday. Stocks on Wall Street also continued to fall on what was seen as excessive tightening by the Fed. This seems to have surprised the market, as well as the fact that Japan intervened in the JPY, often considered one of the most important safe haven currencies.

Before the opening bell, the Dow Jones fell over 350 points or 1.2%. The S&P and Nasdaq also show similar declines before markets open on the last day of the week.

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