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Market is Unsure about Terminal Rate, USD is Pursing

by Didimax Team

The movement of united States dollar index is pursing. That was happened on a Friday trading, 24 of June 2022. That is why; a declining trend may be occured in greenback for it’s first week in this month. 

Elsewhere, the market participants are re-calculating the terminal rate projection. That is also about the economy recession which may be happened in the future. 

The PMI / purchasing Manager’s Index survey result publication for the UK, EuroZone, and America, showed the signs of economic slowdown yesterday. That sign was really clear to see. 

As a consequence, the market participants start to consider again about the interest rate increase trajectory. It is especially from many major central banks. 

 

The Schedule Could Be Earlier

The major central banks in this case is like Federal Reserve America and Bank of England. These institutions may need to make their interest rate increase schedule earlier than before. 

Another option is by stopping the cycle faster. The aim is to make any policies don’t crash with the start of recession. For the situations like those, some consequences are waiting ahead. 

The example is like a terminal Rate calculation which is trimmed. Terminal rate itself is the one as a level at the end of a cycle of monetary tightening policy made by central bank. 

Usually, market participants will think that central bank has the same terminal rate target with the neutral type. That can make an economy situation is more stable at the wanted equilibrium. 

Market Expectations on Terminal Rate is Lower

What is a neutral rate? In fact it is a level which is hoped to support economy in a condition of maximum employment and stable inflation. For your information, there is not any exacts value for it. 

The reason is that the neutral type Character is theoretic and it depends on the economic condition. The interesting thing is that the newest data made by Reuters. 

That data showed a slow down in market expectation for terminal rate. The prediction for current interest rate made by The Fed is around 3.4 percent. That was declining compared with a 4.1% level last week. 

Mean while, the ECP peak rate prediction is also made. The prediction made is in 1.8% although it was noted at 2.6 percent before. That was before the worst PMI data publication yesterday. 

The Rally Effort may Find It’s Obstacle

Elsewhere, the declining trend could be also found on the BOE terminal Rate expectation. It was declining from 3.6% to become around 3.1 percent. This situation triggers various effect. 

One of them is that it brakes the speed of United States dollar in a short term period. However, it seems that the rally effort made by the other currencies will be restrained by an expectation.

That is related with the thought that each terminal rate will be slumped. That is why; wait and see could be the best action which is going to do by market participants right now.

They will still on that action until they find the next catalyst which is more significant. Besides that, the re calculation in this market has been holding USD in an autopilot way. 

Dollar Weakening is Limited

An analysts shared his thought that the dollar weakening will be limited. That is why; people may brake their action and it triggers the monetary tightening in this foreign exchange market.

Furthermore, the increasing interest Rate could be something which cannot be avoided. However, in several months ahead, this can be reduced in the Euro and Sterling market. 

In the other places, the gold price raises is not that smooth. There are two causes for this; recession and for sure the Interest rate increase which will be done by The Fed in July. 

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