Inflationary pressures in the United States are slowing down, and the market expects that the Federal Reserve’s interest rate hike this week is expected to slow down to 1 yard (25 basis points). However, UBS believes that although the Federal Reserve will continue to raise interest rates, it is expected The employment data may slow down, driven by factors such as the flat performance of the ISM manufacturing industry, which will turn the dollar from strong to weak.
The three major central banks including the United States, Europe and the United Kingdom will hold interest rate meetings this week. The market expects the three central banks to continue raising interest rates. Among them, the highly indicative US Federal Reserve will hold a meeting on the 2nd Taipei time. Will continue to raise interest rates, but the pace of rate hikes will be slowed down to only one yard.
UBS believes that the Federal Reserve is expected to continue to raise interest rates when inflation data is still high. Under the premise that inflation is very likely to cool down in the first half of this year (2023), it may prompt the dollar to reverse downward.
At present, the market generally expects that in the case of cooling inflation and slowing PMI data, it is judged that the Federal Reserve will slow down its interest rate hikes. However, there are also opinions that the Federal Reserve will continue to raise interest rates in the short term while the labor market is still tight.
UBS believes that although the probability of the Federal Reserve raising interest rates by one yard this week is high, it is expected that the US dollar will not rebound with the interest rate hike, but will reverse downward, including the possibility of a slowdown in the number of non-farm payrolls to be announced this Friday , ISM manufacturing may be flat, which will lead to a depreciation of the dollar.
Regarding the euro, the market currently expects that the central bank will raise interest rates by 2 yards (50 basis points), but UBS believes that, including the uncertainty of the war between Russia and Ukraine, the negative impact of monetary tightening on the economy, and the risk of a US recession These are the challenges that the ECB must face.
UBS believes that the price index to be announced this week may slow the rise of the euro, but the decline in natural gas prices will also reduce the risk of a recession in Europe, so its view on the euro has changed from negative to neutral.
In terms of the pound, the market expects the Bank of England to raise interest rates by 2 yards this week. Although the market expects that the United Kingdom will not experience a severe economic recession, the bleak economic outlook will also put the pound under pressure to depreciate before September this year. Optimistic about the performance of the British pound market outlook.