Markets in a whirl as Fed disappoints the doves
Thursday 3 November 2022
Last night the US Fed threw in a curve ball with a 75bps rate hike as expected but then a dovish statement followed by a hawkish Powell which was certainly not expected. Cue solid USD demand after the initial sell-off and that demand has continued in Asia as markets put any Fed pivot hopes firmly in the bin. NFP data tomorrow and CPI next week still very much in play.
BOE the next CB up today but the decision will have already been made last night and they will have to go at least 75bps now and with more hawkish tones, rather than the cautious/dovish tones expected thus far, if the Pound is to find any sort of relief. UK government releases its fiscal policy statement on Nov 17 so have they had those more detailed chats with the Old Lady as they've claimed ? GBPUSD is down to 1.1250 from 1.1560 and EURGBP up to 0.8673 with the latter getting an extra shove this morning in the wake of hawkish comments from Lagarde/ECB.
Meanwhile global equity markets and oil have taken a dive on the surprising FED tones with gold also falling to $1625 after the initial spike above $1670. Geopolitical risk still very much in the mix too and we've seen some risk-off JPY and CHF demand again across the FX pairs. FTSE getting a little support from lower GBPUSD and the base-case thought that the BOE will be lagging the Fed. Norges Bank certainly not intimated by the Fed as they hike by just 0.25% this morning to 2.5%.
GBPUSD: Another rally to test 1.1550-60 post-initial FOMC announcement/statement but now testing 1.1250 after capping into the pivotal 1.1430 after a brief bounce from 1.1375-80 support in Asia. EURGBP: Underpinned at 0.8600 for most of yesterday but capping at 0.8630 before those hawkish ECB comments this morning. Capped around 0.8680 so far before retreating a little. GBPJPY: A solid retreat amid the GBP supply/risk-off JPY demand double whammy and now testing 167.00.
EURUSD: 0.9950-60 capping yet again after the initial FOMC USD supply before the solid retreat to 0.9752 this morning despite the hawkish comments from Lagarde/ECB. USDJPY: Dipped further into 145.75 amid the initial softer USD tones post-FOMC statement but then a solid rally to 148.25 albeit tempered by the risk-off JPY demand and intervention fear still. EURJPY: Supported this time at 144.50 so far after retreat from 146.00. USDCHF: A dip into 0.9900 post-FOMC statement but then a solid rally and hold of 1.0000 amid the relentless USD demand albeit tempered by some risk-off CHF demand. Sellers into 1.0120-30 as I type but some EURCHF dip demand into 0.9840 and SNB never far away also both in the mix to lend support.EURCHF: Capping around 0.9880.
AUDUSD: Down through 0.6300 and testing more bids at 0.6280 as I type. NZDUSD also in solid retreat amid the firmer USD and now testing 0.5760. USDCAD: Based at 1.3550 post-FOMC statement but now 1.3765 a amid the USD demand.