USD Falls As Fed Hikes Rates But Sounds Less Convincing on Further Hikes

Sentiment towards USD has shifted into the end of the week following a more neutral tone to the Fed’s outlook at the FOMC on Wednesday and the latest US economic data yesterday. US preliminary Q2 GDP was seen falling 0.9%, extending the decline from the 1.6% drop in Q1. With two consecutive quarterly contractions recorded, the US is now unofficially in a technical recession (final GDP reading needed to confirm).  

Markets began swiftly repricing their rate projections for the remainder of the year with traders now looking for just a 50bps hike in September, reflected in the US Dollar ending the week on a much softer footing. Traders now look to today’s core PCE index for June. This is a key inflation gauge for the Fed and while unexpected strength here might curb the USD selling, any weakness will certainly amplify the current declines. 

Key Factors for Today

• USD down as traders scale back rate-hike expectations following GDP miss

• Markets higher, despite recession fears, on paired back central bank tightening forecasts

• Better US tech earnings help lift markets – both Apple and Amazon beat forecasts

• Gold and silver rally sharply on weaker USD

Coming Up 

• EUR Eurozone flash CPI estimate

• CAD Canadian GDP

• USD US Core PCE index

Risk Sentiment Stronger As USD Falls -  Better Tech Earnings as Apple & Amazon Beat

Risk markets are ending the week on a better footing following yesterday’s US GDP miss. Despite raised recessionary fears, the data has weighed on near-term Fed rate-hike expectations, leaning on the US Dollar into the weekend. Some further bright spots within the US earnings landscape have also helped lift equities markets, with Apple and Amazon both beating earnings forecasts yesterday. Given some of the weaker tech sector earnings we’ve seen, this news was cheered on by investors. 

UK Energy Companies See Record Profits

In the UK, energy companies lead the table in terms of quarterly profits, helping lift the FTSE ahead of next week’s BOE meeting. Shell reported a record $11.5 billion in earnings over Q2 as a result of soaring gas and oil prices, marking the second consecutive quarter of record-breaking profit growth.  The company announced a $6 billion share-buyback operation on the back of the results. 

Softer Tone to Asian Equities On China Tech Declines

In Asia, the Nikkei has been more subdued on Friday and has seen a less bullish week overall. Late strength in JPY amidst a falling Dollar has hampered gains in the index. Additionally, overnight falling Chinese tech stocks have created some contagion with the Shanghai composite falling around 2% from the week’s highs, leaning on investor sentiment. 

USD Weaker, JPY Leads in FX

In FX, the US Dollar is sinking lower at the end of the week as traders continue to scale back their Fed rate hike expectations over the remainder of the year. The fall has benefited the Japanese Yen most. Despite a broadly positive risk-tone into the week end, JPY has surged ahead of other currencies in the G10 perhaps suggesting that the current risk-on moves won’t last. 

Metals Bounce Back 

The slide in USD is also allowing a firm recovery in the metals space. Both gold and silver are rallying sharply into the end of the week. Gold prices have risen over 3% while silver prices have bounced back by around 9%, helped also by the better tone in equities prices as the Dollar softens.