IFX Market Report: Friday 5th August 2022

Yesterday saw the Bank of England’s biggest rate hike in 27 years. The bank increased its interest rates by 50 basis points in what was its sixth consecutive rate hike. The Monetary Policy Committee of the BoE expects inflation to peak at 13.3% in October and to remain high throughout 2023 before falling down back to 2% by 2025. It also predicts that the British economy could be facing recession as soon as Q4 2022, one that could last for 5 quarters, and therefore until early 2024. The forecast is largely driven by the near doubling of wholesale gas prices in Europe since May, as Russia is slowly cutting supplies to the West in retaliation to sanctions. Cable was down over 0.5% following the bank’s announcement, trading at around 1.209 before recovering before closure, while the FTSE 100 index climbed 0.5%.

The Halifax House Price Index for July shows the effects of rising interest rates on the housing market it fell down by -0.1% when it was expected to rise by 1.2%. With higher interest rates from the BoE, interest payments on mortgages also increase as borrowing and lending cost increase for the lending bank.

As expected yesterday, the Indian central bank increase its interest rates by 50 basis points to 5.40% as it is battling with devaluation of the rupee. Inflation was above the Reserve Bank of India’s level of tolerance in Q2 and Q3, with June inflation reaching 7%. The currency is also facing record lows as it battles to stay under 80 rupees for a dollar.

Over in Taiwan, recent tensions over Nancy Pelosi’s visit to Taipei have created a de facto embargo of the Island as China is performing military manoeuvres around the archipelago. The tensions could create a semiconductor shortage which could widely affect global supply of chips for electronic devices as Taiwan Semiconductor Manufacturing Co. Ltd accounts for 54% of the global market. A war could be disastrous for the Chinese economy as it would lose its main supplier for semiconductors, with many Taiwanese companies having factories in China, such as Foxconn, the company building the iPhones for Apple in China. Taiwan exports to China account for $188.91bn and Taiwan itself received $200.1bn in orders from the United States in 2021.

Cable regained momentum yesterday despite a drop after the BoE interest decision yesterday. GBPUSD opened at 1.2144 Monday and closed at 1.2157 on Wednesday.

GBPEUR on the other hand saw a big loss with -0.64%. The pair opened at 1.1947 and closed at 1.1869.

EURUSD followed a similar trend with 0.78% gain for the euro. The pair opened at 1.0162 and closed at 1.0243.

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