Marc Chandler, Managing Partner at Bannockburn Global ForEx, joins us to unpack the Fed starting it’s rate hiking cycle last week, and how this effects the bonds and interest rate markets, and currencies.  We start off with the recent calls for a more aggressive central bank action plan of 50 basis point hikes in the meetings to come, to help normalize rates in the face of persistently high inflation.  Marc believes inflation may start trending lower due to year over year base effects, and that the market will be forward looking in this regard and use and 18 month average expectation for guidance in relation to where interest rates have trended.  We also the discuss the trends globally of other central banks to start hiking rates more aggressively, noting that the Canadian central bank may also hike next meeting by 50 basis points.

Next we shift over to the currency markets and note that most of the commodity currencies like the Canadian dollar, Australian dollar, Brazilian Real, and even the Mexican Peso has been gaining ground on the US Dollar.  Marc believes the US Dollar, is often at the fulcrum of a teeter totter, where one one side there are the commodity currencies just mentioned, and on the other side the heavier weighted European Euro and Japanese Yen, have been falling in relation to the greenback, keep the US Dollar stable around the 98-99 level.   Marc outlines why he is less concerned about the replacement of the US Dollar as the reserve currency and notes how other countries, even trading commodities in other currencies are still either pegged to the dollar or reference the dollar in transactions. 

We wrap up with the news and key data points expected to be released in the week come highlighting the coming US Jobs Report, the Chinese PMI reading which will likely show slowing growth, the Japanese Tankan Survey, and the Eurozone CPI reading.

Click here to visit Marc’s blog – Marc to Market.