Good morning
Fed raised rates 25bps to 5%, USD initially weakened and hat weakness continued when Powell spoke. He made it clear Fed will do enough to get inflation down to 2% in time and does leave the door open for rate rises if needed but for now the peak rate is lower and one and two year forecasts have also been revised lower (4.3 from 5.1% and 3.1 from 4.1% respectively). The change in wording from ‘ongoing increases will be appropriate’ to ‘some additional policy firming may be appropriate’ showed the change in Fed’s guidance.
During the press conference EURUSD traded up to 1.0910, GBPUSD to 1.2335 and UDSJPY down to 131.00, then down to 1.0855, 1.2265 and 131.65 respectively, and by the end they were pretty much in the middle of those ranges. Overnight we did see some more USD weakness, EURUSD saw a high of 1.0930, GBPUSD reached 1.2340 and USDJPY hit 130.45 but we are now off those levels, currently 1.0895, 1.2310 and 131.10.
There were obviously a lot of questions on the SVB collapse, mostly based around the action the Fed took and whether Powell thinks we are now out of danger of contagion. His words generally offered some comfort to the markets. On the other hand, US Treasury Secretary Yellen said she wasn’t considering a blanket insurance on deposits, the risk-off sentiment that followed seemed to be the driver of the USD weakness overnight.
This morning we have seen SNB raise rates 50bps to 1.5%, CHF traded higher with EURCHF moving from 0.9995 to 0.9940, not quite sure why the knee-jerk reaction given the move was widely expected.
We do have BoE rate announcement at midday. A 25bps rise to 4.25% is the favoured outcome, some are thinking rates could be left unchanged but with a strong CPI print yesterday I think the BoE will have to show they are doing their bit in the fight against inflation. So I’ll go with a 25bps rise but a couple of members voting to keep rates unchanged. If BoE were to surprise with no change, I’d imagine GBP must take a bit of a tumble.
Gold has had a post-FOMC push higher, it reached $1983 or so earlier this morning and a break of the $1985 area must surely open up another test of the $2000/2010 area that we hit earlier in the week. Goldmans have said they see gold target of $2050 in the coming twelve months, but say a move over $2100 would be a challenge unless the Fed started cutting rates.
That’s all for now. Roll on midday and then 7.45pm when England’s football team take on Italy in a repeat of the Euro 2020 final. I don’t believe England have beaten Italy since for over ten years, but despite being away from home the bookies have them as favourites. We’ll see……
- 08.30 SNB rate announcement
- 11.00 CBRT rate announcement
- 12.00 BoE rate announcement
- 12.30 US initial jobless claims
- 14.00 US new home sales
- 15.00 EU consumer confidence
- 15.00 ECBs Lane speaks
- 22.00 AUS S&P services, manufacturing PMI
- 23.30 Japan CPI
- 00.01 UK GfK consumer confidence
- 07.00 UK retail sales
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