Daily Market Update

U.S. Dollar returns quickly post-Fed reaction globally

June 16, 2022

The U.S. Dollar is trading in mixed ranges following a major aftershock from the Federal Reserve’s decision to hike by 75 basis points, indeed the most aggressive course of contractionary action taken since 1994. 

Overview

While Fed Chairman Jerome Powell spoke during his press conference, equity markets seemed to be relieved that he explained these interest rate increments will not be commonplace but that it was May’s headline inflationary reading that forced this historic moment.

A 40-year reading last week convinced officials to act now, while one member showed dissent and insisted on keeping the pace at 50bps. Yesterday afternoon, the greenback took a hit.Overnight and this morning, the narrative became very gloomy since the interpretation post-Powell comments are that he has no control over a potential recession or higher inflation, admitting to other physical elements from the pandemic and Russian invasion hurting the current economic situation.

At the same time, he gave a message of resilience and belief in the economy, stating that it is ready to withstand higher borrowing costs.He also said what everyone keeps writing about is a time of “high uncertainty” thus, we are seesawing between gains and declines for the buck. Data moving forward will need to show inflation is slowing down, or the Fed could act again. The next meeting is on July 7th.

 

What to Watch Today…

  • No major economic events are scheduled for today

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CHF

The Swiss Franc experienced a big positive move following a surprise interest hike of 50bps by the Swiss National Bank.  SNB President Thomas Jordan said that officials were ready to do anything needed to combat inflation. This all came as unexpected since traders did not forecast such a hawkish decision. He also said that they did not exactly where they wanted the Swiss Franc to trade, but that levels too weak would mean they would be willing to intervene.

Additionally, he was quoted as explaining, “We do not exclude further rate hikes, but we are also not in the business of forward guidance, that you are telling exactly what you are doing in the next few quarters.” CHF is up by 2.0% already.

 

GBP

The Pound improved slightly this morning after the Bank of England also met and raised interest rates but kept it moderate to 25bps. The Bank of England, however, was not in consensus, which brings to it doubts that they will continue to have the determination to keep lifting rates. Naturally, the action taken is due to inflation, but there seems to be a theme of blurred reality for all central banks.

As Fed’s Powell answered questions late into his conference, he emphasized that central bank measures can only do so much, leaving markets to believe the challenges ahead will force a recession in order to normalize prices. It is not a very hopeful narrative taking hold of markets at the moment.

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