surge

Bank of England rate decision – 22/06 – this week's central bank rate decision is likely to see the implementation of at least another rate 25bps rate hike from Bank of England policymakers, with the usual suspects of Tenreyro and Dhingra expected to dissent once more, despite UK core inflation surging in April to 6.8% and its highest level since the early 1990's.    With this being Tenreyro's last meeting, she is being replaced by Megan Greene next month, the dissent on the MPC is likely to be much less over the coming months. With average wages surging by 7.2% in the 3-months to April, we saw yet another blow to the central bank's tattered credibility, prompting concern that the MPC might have a lot more to do on the rate front in the coming months.   The current terminal rate being priced by markets is for the UK base rate to top out at 5.75%, 125bps higher from where we are now, after the April wages and unemployment data. While that is probably overpriced, the fact we are at these levels is further evidence of the Bank of England's failure on the policy front. The day before this week's decision we will be getting the latest inflation numbers for May which are expected to show headline inflation decline further from the 8.7% we saw in the April numbers. While this was the lowest level since March last year, it remains painfully high when compared to the likes of the US and in Europe.   Core prices are also higher, as wages continue to exert upward pressure on service cost inflation. For months now Bank of England policymakers have consistently underestimated the persistence of current inflationary trends, consistently hiding behind the Russian invasion of Ukraine, even as commodity prices have fallen well below the levels they rose to in the aftermath of that invasion.   While they are not completely to blame, they have made any number of mistakes, which they seem incapable of acknowledging. Offering mea-culpas appears to be beyond them, with officials showing little indication that they would have done anything different. This is especially worrying given that an acceptance that they might have got things wrong might require some introspection with a view to making changes to ensure a better outcome the next time. If a central bank can't acknowledge its mistakes, how can it learn from them and do things better the next time. 

Market picture The crypto market has gained another 3.9% in the past 24 hours, reaching a capitalisation of $1.18 trillion. It has diverged from the stock indices, which have fallen sharply in the previous days due to expectations of a rate hike. Bitcoin has surged more than 15% in two days, revisiting the area of April highs just above 30k. However, this is where the recovery has paused. Bitcoin needs to consolidate a bit before it can resume its ascent. Moreover, there are doubts that the cryptocurrency rally will continue soon, as the stock indices create a challenging environment for risk-sensitive assets across the board. The technical targets for the BTCUSD correction are the 29.3 and 28.5 levels, 76.4% and 61.8% of the latest rally, respectively. If the decline is halted at either of these levels, we could expect new multi-month highs soon.     News background The official launch of the new crypto exchange EDX Markets boosted Bitcoin’s rise. The project is backed by financial giants Citadel Securities, Fidelity Investments and Charles Schwab. The market also reacted positively to BlackRock’s application to the SEC for a spot bitcoin ETF, filed last week. Grayscale Investments’ GBTC bitcoin fund saw its trading volume increase five-fold to $80 million after BlackRock’s filing with the SEC. Following BlackRock, three other major investment firms - WisdomTree, Invesco and Bitwise - also applied for a spot bitcoin ETF. Fed chief Jerome Powell said the regulator considers payment stablecoins as money and therefore has to regulate their issuance. He said it would be a “grave error” to allow large amounts of private funds to be created without oversight. Stablecoins and DeFi projects could be the following targets of the SEC’s crackdown, according to investment bank Berenberg. After suing major exchanges, the SEC may now go after the issuers of the two largest stablecoins, Tether (USDT) and USD Coin (USDC).

We recently had the opportunity to speak with an analyst from Squared Financial to discuss the current market situation. With the crypto market showing resilience and gaining 3.9% in the past 24 hours, reaching a capitalisation of $1.18 trillion, it has diverged from the downward trend seen in stock indices due to expectations of a rate hike.  Bitcoin, in particular, has experienced a surge of over 15% in just two days, revisiting the April highs. However, as we delve deeper into the market dynamics, doubts arise regarding the sustainability of the cryptocurrency rally amidst the challenging environment created by the stock indices.   FXMAG.COM: How will a mid-term Fed and ECB decision last week affect EUR/USD? The Federal Reserve delivered a hawkish pause. Markets were anticipating a pause with a possibility of one more rate hike in July followed by a rate cut by the end of the year. However, the Federal Reserve hinted at two more hikes and no rate cuts this year. Markets had to price in such a scenario. However, the ECB was more hawkish than the Federal Reserve, keeping the door open for further hikes on higher inflation expectations, sending the Euro over 1.09. In the meantime, the Dollar Index is showing signs that the downside trend has resumed. Yet it needs more time to confirm. Another weekly close below 102.60's would confirm that. On the other hand, this would be a confirmation that the Euro's upside trend has resumed as well, which could be targeting 1.11 within two weeks. FXMAG.COM: How will Thursday's (22.06) SNB interest rate decision affect CHF quotes? Switzerland's Core Inflation rate ticked below 2.0% in its latest release, which is the lowest core inflation rate since November of last year. The annual inflation rate in Switzerland eased to 2.2% in May 2023 from 2.6% in the previous month in line with market forecasts. There is no reason for any surprise by the Swiss National Bank. A 25bps is highly possible, but what matters the most is if the SNB hints at a pause. If so, CHF is likely to weaken. FXMAG.COM: Is there a chance that the U.S. SEC oversight will finally approve the application of some investment company to authorize the creation of an ETF with exposure to BTC, and how will that affect the price of this cryptocurrency and others? It is highly possible that the SEC will authorize crypto-related ETFs especially those with exposure to BTC. Despite all the headwinds the Crypto market had over the past few months, we saw some stabilization. Moreover, when it comes to the price and time method, it suggested that BTC ended its bear market back in March. The application of major investment companies sparked another wave of optimism, yet tough regulations are still needed.

Equity markets are cautiously higher in Europe while the US is poised to open relatively flat as we await appearances from the heads of the Fed, ECB, BoE and BoJ.   Fed Chair Jerome Powell, ECB President Christine Lagarde, BoE Governor Andrew Bailey, and BoJ Governor Kazuo Ueda are due to take part in a panel discussion at the ECB Forum on Central Banking around the opening bell in the US and their comments could set the tone for the rest of the day. Often in these situations, policymakers will stick to the script, preferring to leave big announcements for meetings and certain high-profile events. But with so many heads appearing at the same time, there’s every chance at least one says something that will either rattle or stimulate the markets. To make this event more intriguing, they’re all contending with very similar issues and yet their individual situations are quite different, which could make the discussion all the more interesting. The Fed is arguably closest to the end of its tightening cycle and will probably be the first to cut rates, the ECB appears to be making some progress but is also more pessimistic than many on how much more is needed, the BoE is in a mess, frankly, and the BoJ may simply watch as the whole thing passes it by.   It really is quite fascinating and it will be interesting to hear what each has to say about the current environment. Especially with the Fed and ECB until now adopting a more hawkish stance than most, the BoE coming across less hawkish but recently being forced to pivot back to larger hikes, and the BoJ pushing back against any hawkish expectation in the markets.   Is bitcoin going to take off from here? Bitcoin has steadied between $30,000 and $31,000 in recent days after surging on the back of encouraging ETF filings. The SEC lawsuits against Binance and Coinbase have not been forgotten but they’ve certainly drifted into the background and been overtaken by far more promising news flow. It would appear the cryptocurrency has good momentum once more and the community may well be wondering if this could be the kind of development that sees enthusiasm for cryptos surge again. It’s obviously been a fantastic year for bitcoin so far but the sell-off since mid-April was another reminder that it doesn’t come without major setbacks.  

A new three-month high Can Brent break the 200-day SMA? Oil prices are trending higher again on Monday, building on the surge late last week and reaching their highest level in three months. There have been a number of factors that have contributed to the gains recently, starting with the Saudi extension to its million barrel cut alongside Russia’s export reduction followed by data that could enable a soft landing in countries that are aggressively raising rates.   Brent hits new three month high Not only has that taken Brent crude back above $80 a barrel, much to the relief of the Saudi’s, but it’s adding to those moves again. It will be interesting to see how Brent responds around roughly $82.50-$83.50 where it is already seeing some resistance today. It may not have traded at these levels in almost three months but it hasn’t significantly breached the 200-day simple moving average since last summer.