Professional investors and do-it-yourselfers are sharply split over the best way to position ahead of the Federal Reserve’s rate decision on Dec. 14. 2022 has been a year when many didn’t make the right calls. According to professional investors, a 50-basis-point increase in interest rates would most likely benefit high-grade corporate credit. Long-dated Treasuries increased sharply recently and dropped the 10-year yield below 3.5% on Wednesday. They were the retail traders’ second choice. The currencies work their way low in terms of volatility.
37% of retail investors believe owning US stocks is the best trade ahead of the rate decision. In comparison, 40% of professional investors say it’s preferable to short them, according to the latest MLIV Pulse survey. Citigroup’s viewpoint that the US dollar will remain solid in the short term and then depreciate over the second half of this year was declared the most popular strategy by all respondents in 2023. This agrees with the expectation of most consumers and business people who believe that if the Fed does not continue to raise at mid-year, it will lower rates.
Implied Volatility Signals Key FX Pairs to Remain Rangebound
Currency traders appear more cautious. Meanwhile, equity traders are concerned about major stock fluctuations following Tuesday’s US inflation data. It’s still a bit early for specific forecasts, and both investor groups will have to wait for further developments.
Major currency pairs like the euro, yen, and AUD have higher overnight expectations for moves around their year highs. They suggest that the currencies stay in their recent trading ranges for a considerable time.
According to Bloomberg data, the much-awaited CPI print is within the range it has been in since Nov. 30. With this in scope, yen option markets see a 72% chance it will trade between 135.60 and 139.70 per dollar. The Aussie shows hold a similar likelihood of settling between $0.6647 and $0.6853, which is also within their recent trading range.
