Interest rates key focus for the week ahead

 Interest rates key focus for the week ahead

Interest rates key focus for the week ahead.

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The ahead week is arguably a crucial week in the build up of the year ahead within financial markets. Underlying to the price action seen in financial markets are interest rates. Interest differential aid in determining the foreign currency exchange rate of different foreign currency pairs.

Interest rates aid analyst to determine valuations of company stocks, borrowing rates seen through various fixed income securities including government bonds and inflation protection notes. Interest rates aid in evaluating the strength of an economy through the soundness of the monetary policy which helps govern the policy rate in response to inflation.

More importantly, interest rates assist in containing inflation in that, when the economy is overheating through increasing inflation, central banks react through increasing (hiking) interest rates and if the economy is slowing down, they lower interest rates to encourage the stimulation of the economy.

Wednesday the US Federal Reserve will be announcing the policy guidance for the quarter ahead. Leading to the FOMC meeting the market perception has been that the US Fed is behind the hiking cycle. With runaway inflation in the US at 7% a 30-year high, the US Fed Chair Jerome Powell is expected to sound hawkish in response to the inflation. Hence the meeting will be crucial in determining how the following weeks will unfold.

Locally the South African Reserve Bank (SARB) will be announcing their policy guideline on Thursday. With the SARB having reacted on time and containing inflation, the market will be listening for ques of possible interest rate increase.

Hence the week is likely to experience volatility on Wednesday and Thursday in reaction to the announcements. Though leading to the days foreign exchange markets as seen in the USDZAR and EURUSD will possibly be trading sideways in the absence of market moving news.   

Disclaimer: the publication of analysis is a marketing communication and does not constitute investment advice or research. Its content represents the general views of our experts and does not consider individual readers’ personal circumstances, investment experience or current financial situation. Analysis is not prepared in accordance with legal requirements promoting independent investment research and Exness is not subject to any prohibition on dealing before the release of analysis. Readers should consider the possibility that they might incur losses. Exness is not liable for any losses incurred due to the use of analysis.

Terence Hove

Terence Hove, a Financial Markets Analyst with multi-asset brokerage firm Exness completed his BBusSci: Economics at Monash University. With over 8 year experience within financial service his expertise is well developed in financial markets analytics and trading. Exness is an industry leader that provides reliable online trading in financial markets. Exness offers professional services on the above-mentioned assets, please follow the link to learn more on the offering exness.com

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