The hawkish position of committee members from the minutes of the Federal Open Market Committee (FOMC) released yesterday threw investors who traded positions based on the expected effects of a further interest rate hike on commodities and cryptocurrency. The bulls, for instance, were forced to take profits on gold and silver yesterday, which are the primary two commodities. While Bitcoin and other cryptocurrencies witnessed a further decline.
Highlights from the FOMC meeting minutes
The FOMC meeting was held on the 3rd & 4th of May 2022. However, the minutes are usually made available customarily three weeks after the meeting, which is why it was published yesterday by the Federal Reserve Board.
The FOMC, during this session, had approved an increase in the interest rate by 50 basis points starting next month in June; as a way of controlling the increasing inflation. The commitment to proceed with a further interest rate hike in their subsequent sessions till inflation is finally reduced to the barest minimum to meet the 2% target of the committee members. Members emphasised the need to quickly raise interest rates, even more than markets anticipate, to curb the persistent inflation challenges. It was considered the only way to bring inflation down and maintain price stability, notwithstanding the effects it is likely to have on the economy.
What does the prolonged interest rate hike trigger in the market?
We have highlighted the pairs to be significantly affected below:
FX currencies
The aftermath of the extended hikes in interest rates will further strengthen the US dollar index making the US dollar one of the strongest pairs in the market. This will place other pairs set against the US dollar on a temporary downward trend until such countries also raise their interest rates to compete with the US dollar. Eg. EURUSD, NZDUSD, USDCAD, etc.
Cryptocurrency
The increase in the interest rate will result in a bearish trend for crypto for a while, as investors will lose interest in their investments in risky assets such as Bitcoin and other cryptocurrencies. This time, investors will be pushed to embrace less risky assets such as bonds, the Japanese Yen, and the dollar.
Commodities
Often commodities such as Gold and Silver are seen as hedges against inflation by investors. However, with the Fed’s determination to fight inflation this time and ensure price stability, commodities will undoubtedly become less attractive to investors. This suggests we can see more downside for these pairs next month.
Stocks
The stock market booms only when a lot of money is in circulation caused by inflation. However, with many investors withdrawing from the capital market to invest in other less risky assets, the stock market will no doubt be impacted negatively too.
Any way forward for investors today?
Of course, traders have no reason to panic about whether the market is bearish or bullish. Trading the different pairs listed above as CFDs provides the trader with an ample opportunity to make profits at all seasons. Thus, one can simply ‘short’ the market during bearish seasons and make profits while taking the opposite course of ‘longing’ the market during bullish seasons.
How to trade Forex CFD?
To gain an advantage from the market, whether bearish or bullish seasons, ATFX has covered you by providing you with the opportunity to trade your desired forex pairs as CFDs. This includes FX currencies, Crypto, Commodities, Bullion, stocks, ETFs, indices, and crude oil. To access these services, you only need to sign up for an account with ATFX, and the doors to the financial market will be opened wild enough for you to enter and milk the market.
