<p style=““ class=“text-align-justify“>The implied odds of a 100 bps rate hike by the Fed this week have crept back up a little to ~19% now, roughly where it was before the UMich report at the end of last week <a target=“_blank“ href=“https://www.forexlive.com/news/umich-september-us-prelim-consumer-sentiment-595-vs-600-expected-20220916/“ target=“_blank“>here</a>. Those are still relatively paltry odds but the fact is that markets are leaning towards expecting more from the Fed – with the baseline set at a 75 bps rate hike.</p><p style=““ class=“text-align-justify“>I reckon that might say something about the reaction to the policy decision later in the week, with markets seemingly leaning towards a more hawkish message to cover for the extra that is being priced in above.</p>

This article was written by Justin Low at forexlive.com.

<ul><li>German economy is already contracting</li><li>Situation to get worse as gas consumption is cut or rationed</li><li>The economy is likely to shrink even if outright rationing is avoided</li><li style=““ class=“text-align-justify“>Economic activity may pull back somewhat this quarter and shrink markedly in autumn, winter months</li></ul><p style=““ class=“text-align-justify“>The bright spot is that they do not expect the adverse scenario published in June, which saw the economy contracting by 3.2% next year, to materialise at least. But nonetheless, a looming recession will keep the dark clouds hanging over the euro in the months ahead and the gas/energy crisis will only be amplified again next year.</p>

This article was written by Justin Low at forexlive.com.

<ul><li>Monetary policy always tries to act to fight inflation</li><li>Further interest rate increases will depend on economic data</li></ul><p style=““ class=“text-align-justify“>There’s still some time before next month’s policy meeting decision on 27 October, so I reckon we might get a better sense of what the ECB wants to do then. Another 75 bps rate hike is plausible as money markets have priced in roughly ~70 bps for both October and December, though rate cuts are already being priced in as well for late next year.</p>

This article was written by Justin Low at forexlive.com.

<p style=““ class=“text-align-justify“>The recipe for what is needed to bring things under control in the US, without incurring a recession that is:</p><p style=““ class=“text-align-justify“>The question now is whether we will see a soft landing or hard landing when it comes to how much the economy is going to slow down as lawmakers and policymakers try to bring inflation under control. Ideally, they’d like the former but there are many moving parts to determining that – not to mention factors outside their control such as China’s situation.</p><p style=““ class=“text-align-justify“>In some sense, central banks are in the driver’s seat as their management of tighter policy is akin to shifting through the gears in determining the speed in which we are going to be dealing with said economic challenges. Goldman Sachs‘ take is that they see the Fed hiking by 75 bps this week followed by two more 50 bps rate hikes in November and December:</p>

This article was written by Justin Low at forexlive.com.

<ul><li>Prior -1.2%</li></ul><p style=““ class=“text-align-justify“>Looking at the details, building construction increased by 0.3%, while civil
engineering decreased by 0.6%. It’s a decent recovery after the drop in June but other areas of the euro area economy are less optimistic basing off Q3 figures so far.</p>

This article was written by Justin Low at forexlive.com.