In line with market expectations, the U.S. Federal Reserve raised interest rates by 0.25%, or 25 basis points, bringing the so-called Fed fund rate up to between 5% to 5.25%, the highest it has been in 16 years. This is nothing surprising, given that the markets have been pricing in Fed hikes for a while now. Instead, like the past few hikes, investors have taken to interpreting chairman Jerome Powell’s fedspeak for signals on the upcoming pace of hikes.
One key note this time round was a difference in language used concerning future hikes – from the previous meeting: “the committee anticipates that additional policy firming may be appropriate” versus the most recent “determining the extent to which additional policy firming may be appropriate…” hints at a future hike pause.
That said, there has rarely been a case where fedspeak crosses cleanly into what can be construed as forward guidance; especially with upcoming and yet unknown macro data to consider given the lagging effects of rate hikes. As mentioned in the FOMC statement, “the committee will continue to monitor the implications of incoming information…[and] adjust the stance of monetary policy as appropriate if risks emerge..”
At the end of the day though, the markets decided that Powell’s tone was a somewhat dovish one, with the dollar dipping to around the 101.10 level after dropping the most in over 7 weeks.
Other headwinds for the dollar include the risk that the U.S. is in danger of defaulting on its debt – something that no doubt has been affected by the aggressive pace of rate hikes, which also affect the amount of interest that the Treasury department has to pay out. The decision to raise the debt ceiling – defaulting would be disastrous – however, lies with U.S. lawmakers, which will involve plenty of roadblock and delays caused by partisanship.
Meanwhile, investors also have the aftermath (or ongoing effects, depending on who you ask) of the banking crisis to contend with. While the worst of it seems to be over, the full effect of the Fed’s tightening regime still remains to be seen.
With uncertainty surrounding the dollar, haven-seekers have turned to gold as the precious metal shot past 2060 on Wednesday night’s trading before stabilising around 2040.
Investors are now advised to closely watch important macro data for upcoming clues of a possible Fed hike pause. Employment data is sending mixed signals, with the most recent ADP nonfarm data has demonstrated a surprise of 296K – much higher than the estimated 148K and the previous month’s downwardly-revised 142K.
Friday’s important Nonfarm Payrolls data, meanwhile, is estimated to be at 180K, lower than the previous month’s 236K. Evidence of a weakening jobs market will provide more fuel for the outlook on a pause or even reversal in the Fed’s rate hikes.
As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.
Please note the Website is intended for individuals residing in jurisdictions where accessing the Website is permitted by law.
Please note that PU Prime and its affiliated entities are neither established nor operating in your home jurisdiction.
By clicking the "Acknowledge" button, you confirm that you are entering this website solely based on your initiative and not as a result of any specific marketing outreach. You wish to obtain information from this website which is provided on reverse solicitation in accordance with the laws of your home jurisdiction.
Thank You for Your Acknowledgement!
Ten en cuenta que el sitio web está destinado a personas que residen en jurisdicciones donde el acceso al sitio web está permitido por la ley.
Ten en cuenta que PU Prime y sus entidades afiliadas no están establecidas ni operan en tu jurisdicción de origen.
Al hacer clic en el botón "Aceptar", confirmas que estás ingresando a este sitio web por tu propia iniciativa y no como resultado de ningún esfuerzo de marketing específico. Deseas obtener información de este sitio web que se proporciona mediante solicitud inversa de acuerdo con las leyes de tu jurisdicción de origen.
Thank You for Your Acknowledgement!