ECB hikes and warns of slowdown
As we expected, the ECB hiked interest rates by 75 basis points. Although the initial reaction to the news was muted, the press conference held by ECB President Christine Lagarde did move the markets. The ECB noted that more rate hikes are forthcoming as battling inflation is key; however, the hiking of interest rates and high energy costs will cause growth to slow down significantly. The prospect of recession in the Eurozone, aided by good data out of the US, has led the market to choose the US dollar as their risk aversion hedge, and we have seen the US dollar on the front foot. The Euro is trading at 0.9970 at the moment after trading at 0.9930 against the US dollar after the press conference.
Rand on a slippery slope
We did see the South African Current Account print at a deficit after a surplus was expected. This caused the Rand to wobble a little, and the slight risk-off sentiment that the Rand experienced was only exacerbated by the US dollar strength after the ECB announcement. The Rand has touched R17.50, and we could see the currency break above this level in the short term as risk sentiment continues to turn more negative. With the US dollar on the front foot, we have also seen Gold taking a nosedive and is within touching distance of $1,700 per ounce and currently trading at $1,704 per ounce. It is a dollar play at the moment, and we expect risky assets to continue to come under pressure until next week's CPI number out of the US.
