Fed Minutes Point To Larger July Hike – Markets Brace For US Jobs Tomorrow

The June FOMC minutes yesterday confirmed the Fed’s hawkish outlook. Discussions were centred very much around upside risks to inflation and the need to calm soaring prices. 

Growth concerns very much took the backseat in discussions as the Fed discussed the need to frontload rate hikes in a bid to tackle inflation head on. On the back of these minutes, traders are now fully pricing in a further 75bps hike this month along with additional tightening expected in September.  Despite the hawkish tone to the minutes, the Dollar is seeing a softer open today. Traders now look ahead to Fed’s Bullard and Waller who speak today. 

Key Factors for Today

• FOMC minutes solidify expectations for a 75bps hike in July

• Risk assets recover today as USD pauses ahead of jobs data tomorrow

• ECB minutes in focus today

• Safe-haven FX weaker, risk-FX rallying

• Gold and silver pause following heavy selling earlier in week

• Oil stabilises following earlier losses

Coming Up 

• EUR ECB Meeting minutes
• USD Unemployment claims 
• USD Fed’s Bullard and Waller speak

Risk Sentiment Recovers Amidst USD Pause

Despite the hawkish FOMC minutes yesterday, the slightly softer start for the US Dollar today is allowing risk markets some room to breathe. The Nikkei and the FTSE are both climbing across the European open today. The DAX is up off the lows of the week having previously fallen to fresh 2022 lows. Quiet flows are expected today ahead of the headline us labour reports due tomorrow. On the back of the hawkish FOMC minutes, a strong set of reports tomorrow is likely to rejuvenate USD upside, dragging equities lower. On the other hand, if we see any disappointment, risk assets will likely trade higher on a weaker Dollar. 

Safe-Havens Slip as Risk Currencies Rally

In FX, risk currencies are leading the way today. With the US Dollar getting off to a slow start, AUD and NZD are seeing better demand. AUD is still deriving support from the RBA rate hike earlier in the week. GBP is also bouncing back today. The Pound came under pressure yesterday amidst building political uncertainty in the UK linked to a slew of high-level cabinet resignations. Safe-havens have been the weaker performers today with USD, JPY and CHF each taking a backseat amidst the better risk tone so far today. 

ECB Minutes Due Today

Following the FOMC minutes yesterday, today traders will be focusing on the ECB minutes. Given the hawkish expectations ahead of the July meeting, traders will be looking to the minutes to gauge the likelihood of a larger than 25bps hike. 

Gold & Silver Pause Following Fresh 2022 lows Yesterday

Gold and silver have stabilised today amidst the pause in the USD rally. Both metals sunk to fresh 2022 lows this week on the back of fresh USD strength. Looking ahead, flows are likely to be relatively constrained today ahead of the headline jobs data tomorrow. 

Oil Stabilises Following Earlier Weakness

Oil prices have stabilised today also. Yesterday, crude futures were seen plumbing further, fresh lows on the week, hitting their lowest level since April as fresh strength in USD. This week’s EIA inventories report will be delayed until early next week following the independence Day holidays in the US.