September was dominated by the US dollar, which was boosted by expectations of further increases in US interest rates that also drove the two-year Treasury bond yield to its highest level since 2007.
- The Fed raised rates by 75bp to a range of 3% to 3.25%
- Europe’s energy crisis intensified
- The Bank of Japan intervened to support the yen
Fed continues to tighten: September was dominated by the US dollar , which was boosted by expectations of further increases in US interest rates that also drove the two-year Treasury bond yield to its highest level since 2007 . During the month, the federal funds rate was raised by 75 basis points to a range of 3% to 3.25% – its highest level in more than 14 years . Federal Reserve Chair Jerome Powell commented: “We have got to get inflation behind us. I wish there were a painless way to do that, (but) there isn’t”. Consumer price inflation eased from 8.5% year on year in July to 8.3% in August, but remained high, underpinned by rising prices for housing, food and medical care. Over September, the Dow Jones Industrial Average Index fell by 8.8%.
“We have got to get inflation behind us” (Fed Chair Jerome Powell)
Eurozone facing recession: in Europe, concerns over the deepening energy crisis sent the euro to a 20-year low against the US dollar during September. Credit ratings agency Fitch warned that the intensifying crisis was likely to result in recession in the eurozone – an opinion that was echoed by European Central Bank (ECB) President Christine Lagarde , who commented that “skyrocketing” gas prices were likely to prove “recessionary”.
ECB takes action: the ECB raised its key interest rate by 75 basis points to take it from zero to 0.75% and confirmed that it expects to implement further increases “to dampen demand and guard against the risk of a persistent upward shift in inflation expectations”. The eurozone’s rate of inflation rose from 8.9% in July to 9.1% in August, but is estimated to have breached double figures in September. The ECB expects the eurozone’s rate of inflation to average 8.1% in 2022 and 5.5% in 2023 before easing to 2.3% in 2024. The Dax Index fell by 5.6% during September.
Japanese policymakers buck the global trend: unlike most major central banks, the Bank of Japan does not appear to envisage an end to its ultra-loose monetary policy for some time to come; however, this stance has undermined the yen. Although the yen picked up against the US dollar following intervention from Japan’s Ministry of Finance to shore up the currency, it has weakened substantially over the first nine months of the year from around Y115 against the dollar to Y144.76. Over September, the Nikkei 225 Index fell by 7.7%.
To view the series of market updates through September, click here
