- BoE hikes 50 bps-ECB to follow.
- Fed’s Powell sparks risk rally.
- US dollar falls across the board, post FOMC
USDCAD snapshot open 1.3294-98, overnight range 1.3264-1.3296, close 1.3291, WTI $76.45, Gold $1952.70
The Canadian dollar rode a wave of bearish US dollar sentiment following the Federal Open Market Committee (FOMC) meeting and Fed Chair Jerome Powell’s press conference.
The FOMC voted to raise its overnight rate by 25 bps to 4.75% which was not a surprise. The statement repeated the line that “that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.” Again, no surprise.
It was Mr Powell’s press conference that caused the ruckus. The Fed Chair made a half-hearted attempt to push back against the market view that rapidly falling inflation would force the Fed to cut US interests as soon as December. It was unsuccessful.
In fact, when he admitted that the “disinflationary process has begun” his comments ignited a fresh wave of stock buying and US dollar selling. Bond traders drove the US 10-year Treasury yield down to 3.39% from 3.51% pre-FOMC.
Overnight, the focus shifted to the Bank of England and European Central Bank monetary policy meetings.
The Bank of England (BoE) was first out of the gate. They hiked rates by 50 bps to 4.0%. It was the 10th consecutive increase and due to stronger-than-expected wage pressures risking a greater persistence of inflation. The decision was not unanimous. Two Monetary Policy Committee (MPC) members wanted to leave rates unchanged.
GBPUSD traded wildly between the FOMC and BoE meetings. Prices soared from a pre-FOMC low of 1.2275 to a peak in Asia at 1.2401, the dropped to 1.2310 ahead of the BoE meeting. The possibility of a more dovish BoE in coming months drove prices to 1.2266 before they recovered to 1.2305.
EURUSD rallied after Powell’s press conference then consolidated the gains in a 1.0982-1.1032 range. Traders expect the single currency to rally further if the ECB hikes 50 bps and delivers the expected hawkish outlook.
USDJPY is trading with a negative bias in a 128.18-129.13 range due to sharply lower US Treasury yields.
AUDUSD rallied from 0.7043 yesterday to 0.7157 overnight supported by broad US dollar weakness and higher commodity prices.
US weekly jobless claims are excepted to rise 14,000 to 200,000.
