Do you expect a Fed rate hike, pause, or rate cut on June 14?

I personally believe the Fed will surprise the market with another rate hike because although CPI has cooled, core PCE has remained sticky and the Fed doesn’t want inflation to rear its ugly head at all costs.

According to the CNN Fear & Greed Index we are at “extreme greed” levels not seen since February 3rd, which also coincided with a temporary market top.

This leads me to believe the market will begin to fall over the next few weeks until we hit “fear” or “extreme fear” levels again around July.

Archive: https://archive.ph/t0oH2

From the article:

UK inflation is on course to hit 18.6 per cent in January — the highest peak in almost half a century — because of soaring wholesale gas prices, according to a new forecast from Citigroup based on the latest market prices.

The investment bank predicted that the retail energy price cap would be raised to £4,567 in January and then £5,816 in April, compared with the current level of £1,971 a year — shifts it said would lead to inflation “entering the stratosphere”.

[...]

UK and European wholesale natural gas prices are already trading at close to 10 times normal levels and other forecasters have also raised their inflation predictions.

Goldman Sachs and EY said they expected an inflation rate of at least 15 per cent around the start of next year and the Bank of England said this month that inflation would exceed 13 per cent towards the end of the year.

The energy regulator Ofgem will on Friday announce the energy price cap for the period between October and January, which most analysts expect to rise to more than £3,500 for a household with average usage of energy — an increase of 75 per cent on current levels.

I didn't find any great links so made this a self post. Here are some just from Google but they mainly just say what's on the tin:

https://www.bloomberg.com/news/articles/2022-07-11/euro-plunges-to-fresh-two-decade-low-as-dollar-runs-rampant

https://www.cnn.com/2022/07/11/investing/euro-dollar-parity/index.html

https://www.reuters.com/markets/us/safe-haven-dollar-stands-tall-inflation-energy-jitters-2022-07-11/

As of 5:00 pm Eastern on July 11th 2022, if you check the exchange rate, the dollar is now 1:1 with the Euro.

In terms of effects, it seems complicated. Europe has a decently export heavy economy, unlike the US (for which only 10% of its GDP comes from manufacturing), so a weak Euro will help that.

However, it will make all imports more expensive. This is another supply shock, as most of continental Europe already faces heavy issues with regards to energy given the sanctions on Russia, one of the primary energy providers.

So it will certainly make domestic inflation worse (note: domestic inflation and the value of the currency on FX are different things - although they can mutually affect each other). If nothing else, the LNG Europe is buying from the US will be more expensive. The ECB has struggled to raise interest rates to fight inflation given Spain and Italy's high debt levels, and this won't help.

Winter could potentially be very, very bad.

For the US, a strong dollar is probably fine. The US is not a heavy export country, and the dollar surge helps cement reserve currency status from which the US gets a number of benefits. A slowdown in exports will also help tamper inflation.

The pound for the most part has tracked with the Euro, brexit or not.