The Fed raises interest rates on schedule as the world's major central banks compete

On the evening of June 15th, Eastern Time (early morning on Thursday, Beijing time), the Fed's June interest rate decision aroused great concern in the market. While the Fed announced a sharp 75 basis point rate hike, Fed Chairman Powell reminded the market that the rate hike in July may be 75 basis points or 50 basis points. In view of the market's expectation of a 75 basis point rate hike by the Federal Reserve, U.S. stocks closed up on Wednesday (June 15), and the market's focus has shifted from this interest rate decision to the next July resolution.

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The Fed is clearly watching for signs of eventual weakness in U.S. private sector sales. In his speech, Powell was careful to note that "consumers are in really good financial shape" and that "the U.S. economy is in a strong position to handle higher interest rates well." However, he also pointed to a number of factors affecting the market's resilience to consumers, including very low consumer confidence and weak earnings at major retailers. He also acknowledged that there were signs that business investment was "slowing down a bit".

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After the Fed's decision on interest rates came to fruition, the Bank of England raised interest rates by 25bp, and the pound and the US fell 120 points, then rebounded strongly by nearly 130 points to fully recover the decline. The Bank of England said it would take strong measures to combat inflation if necessary. Meanwhile, the Bank of England expects inflation to reach 11% in October.

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After the announcement of the Bank of England's interest rate decision, the pound against the U.S. dollar GBP/USD continued to rise steadily after falling. It once fell to 1.2042, and has now recovered to around 1.2263. Some market participants expect the Bank of England to raise interest rates more sharply to fight inflation, and their expectations for the Bank of England to raise interest rates by more than 25 basis points have increased. After the Federal Reserve raised interest rates by the most since 1994, the Swiss National Bank also unexpectedly raised interest rates sharply. The market was shocked. The Bank of England has instead opted to raise interest rates slightly, although it is the fifth time in a row that the Bank of England has raised rates in an effort to combat rising prices without hurting the ailing British economy. Analysts and investors said a temporary increase in interest rates by the Bank of England should support the pound, although the pound remains under longer-term pressure against the dollar.

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The Swiss National Bank raised interest rates for the first time in seven years, and the hawks raised interest rates by 50bp. The market was worried that it would sell its holdings of government bonds to support the Swiss franc. Affected by this, the government bonds of many European countries continued to fall, and the German government bond yield once hit a new high since 2014.

Foreign exchange options traders are betting the Bank of Japan will join global peers such as the Swiss National Bank this week in roiling markets with a surprise monetary policy decision. Ahead of the Bank of Japan meeting on Friday, demand to hedge against one-day swings in the yen's price was the highest since March 2020, with traders also betting that the already surging yen could post its biggest gain since then. On Thursday, the Swiss National Bank unexpectedly raised interest rates for the first time since 2015, putting the Swiss franc on track for its biggest gain since January 2015. The Bank of Japan has capped bond yields since 2016 and has stepped up its efforts in recent days. But with the Federal Reserve raising interest rates by the most since 1994, pressure is mounting on the Bank of Japan to either change its policy stance or explain when it will end yield curve control.

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International oil prices hit a two-week low. Under the pressure of the Federal Reserve's accelerated rate hike, NYMEX crude oil was at $110.94 in the short-term. But tight global supply and demand capped losses, with global oil inventories now below their long-term average. Investors are more sensitive to tight supply from other countries as Western sanctions limit Russian oil's access to international markets. The International Energy Agency (IEA) said it expects demand to rise further in 2023, growing by more than 2% to a record 101.6 million barrels per day.