Saturday, May 21, 2022

Federal Reserve and first interest rates of 2022: US Dollar Index, JXY, and XAU/USD

The equities, currencies, commodities, and indices have been awaiting the first Fed decision of 2022 in the Asian session prior to Wednesday’s FOMC statement in anticipation of some clues leading to the potential interest rate hike in March 2022.

Since the start of the 2020 coronavirus pandemic, many central banks – including the Federal Reserve – have been expanding their balance sheets through the purchase of assets (Treasury Securities, Mortgage-Backed Securities, and Loans). However in the latter half of 2021, the Fed has begun to gradually contract its balance sheet, and the expectation of analysts, economists and investors is that the officials at the Federal Reserve will continue to prioritize contracting the Fed’s balance sheet prior to increasing the interest. rate in March 2022. However, there is still a sense of uncertainty in investors of whether or not the markets will receive a surprise as it in December rate hikes by the Bank of England.

As of yet, Fed Chair Powell has mentioned and the past FOMC statements have indicated a minimum of three rate hikes throughout 2022. Now the investors await hints of further tightening of monetary policies, contraction of the balance sheet, and rate hikes in the coming months . The market sentiment remains that Fed Chair Powell will maintain the same stance of the data-dependent path for contractionary policies, rate hikes, and action to combat inflation while supporting economic growth.

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DXY: US Dollar currency index

Since the heavy sell-off at the beginning of 2020 when many investors fled to safe-haven currencies and commodities, the USD has recovered its strength with the support of the Federal Reserve, many people and businesses learning to maneuver around new variants of the coronavirus , and investors gaining strength in risk currencies and investments again. In the first few weeks of 2022, the dollar pulled back to retest the bullish structure it created in 2021 and bounced off the key level of 95.15 while currently, reacting to the liquidity zone of 96.

JXY: Japanese Yen currency index

On the contrary, the Yen gained strength in 2020 as investors fled to the safe-haven currency. As the market priced in the new variants, policies, and investors moved back to the USD, the Yen corrected the bullish in 2021. The new bearish trend continued into 2022 when the Yen gained a short-lived bullish push to the liquidity zone of 88 after bouncing off the last low of 86.50.

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XAU/USD: Gold vs US Dollar

Similar to JXY, Gold gained its strength in 2020 as investors moved to the safe-haven commodity. After peaking at 2050, the pair commenced a bearish trend and consolidated for the majority of 2021, pricing in the mixed macro fundamentals (geopolitics, policies, investor uncertainty). Similar to many other indices, equities, and currencies, XAU/USD is also testing key zones.



Tomorrow, Wednesday, is a fundamental heavy day and we will have many more important fundamentals being introduced in the coming two months leading up to March 2022. Many equities, indices, currencies and commodities are tapping into liquidity zones; Thus, it is vital for investors to maintain patience and use caution as they enter the financial markets and the markets await catalysts.


Nation World News Desk
Nation World News Desk
Nation World News is the fastest emerging news website covering all the latest news, world’s top stories, science news entertainment sports cricket’s latest discoveries, new technology gadgets, politics news, and more.
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