The end of the month is often a time for summaries. In addition, the end of August is also the end of the vacations - how hot, not only in the weather but also in the economy and financial markets. So let's turn to a brief summary of events and possible prospects for the fall and winter.
From the point of view of the financial markets, the main topic seems to be where interest rates in the United States will go in time for the end of the year and where they will be next year. At the moment, the market seems to be pricing the possibility of a rate hike on September 21 by 75 bps at almost 70 percent. Thus, the range for the Fed rate could rise to 3.00-3.25 percent. This, according to investors, may not be the end of the hike cycle. This one may end at 3.75-4.00 percent, a range that could be reached in early 2023.
The rise in expectations for rate hikes in the US may have affected the US dollar and gold prices recently. The USD index appears to have completed its third consecutive month of gains in August. Since the beginning of the month alone, the EUR to USD seems to have lost more than 2 percent, and the British pound more than 4 percent, while looking at the change in rates since August 2022, the EUR and GBP could lose around 15 percent, being the weakest currencies among the world's major currencies, except for the Japanese yen, which seems to have recorded a loss of 20 percent in a year. The currencies that could lose the least to the USD on a monthly and yearly basis seem to be AUD and CAD.
It looks like the strong dollar and relatively high expectations of interest rate hikes by the Fed may be leaving their mark on the gold market. The price of bullion appears to have fallen for the fifth month in a row. In August alone, gold may have declined by 2.75 percent, while in relation to the summer of last year, the price drop may be more than 4.5 percent. This still seems to be a small slide in relation to silver prices, which may be 23 percent lower on an annual basis.
How the USD and the market's pricing in it may behave in the fall remains an open question. On the one hand, the hiking cycle by the Fed may already be fairly well priced by the market. In addition, rate hikes in the Eurozone, the UK or Australia may be more aggressive than in the US, which from an interest rate perspective could support the EUR, GBP and AUD. However, especially for the former two currencies, the other side remains - the energy crisis. In this situation, interest rates alone may not help if gas or electricity has to be rationed. Nevertheless, for the moment, when the market may be discounting the worst-case scenario for Europe, a new catalyst would be needed in the US, to support the USD this fall.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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