USD Slumps as Fed Pivots Further – BOE & ECB On Watch Today

The US Dollar was seen falling on the back of the FOMC last night as equities and bonds pushed higher in unison. The fed hiked rates by a smaller 25bps, in line with market expectations and signalled that at least “a few more” increases would be needed. However, Fed chairman Powell’s comments around the disinflation process having already started were taken as a sign that the Fed is nearing the end of its tightening campaign. Market pricing is now suggesting just 50bps more tightening by the summer before the Fed pauses.

Attention now shifts to the ECB and BOE which are both expected to hike by a further 50bps each. Hawkish risks appear more present for the ECB on the back of Lagarde recently warning that inflation was still “way too high” and further aggressive action would be needed.

Key Factors for Today

• USD drops as Fed pivots further, acknowledges disinflation process
• Equities rallied across the board – little softer today ahead of BOE and ECB
• EUR breaks out as USD falls
• GBP lower ahead of BOE
• Gold breaks out – crude falls

Coming Up

• GBP – BOE February Meeting
• EUR – ECB February Meeting
• USD – Weekly Unemployment Claims

Equities Rise on USD Decline

Equities saw solid gains across the board yesterday as USD fell in response to the Fed. US stocks saw the strongest gains, with the Nasdaq seen breaking out to its highest level since September, boosted too by better revenues figures from Meta. Today markets are looking a little softer at the European open as traders brace for the BOE and ECB meetings due.

Meta Beats Revenues Forecasts – Apple Next

The big news from US earnings yesterday was the upside surprise in Meta revenues. The group posted revenues of $32.16 billion vs $31.55 billion expected. While EPS was lower than forecast, investors were bolstered by the revenues data along with news of $40 billion in share buybacks. Additionally, ad revenue fell by less than expected while daily users of its combined platforms (Instagram, Facebook and Snapchat) up by 4%. Today sees another raft of huge tech names reporting with Apple, Amazon and Alphabet all reporting Q4 earnings.

EUR Boosted by USD Drop

EUR was the best performing currency amidst the USD downturn yesterday with EURUSD breaking out to its highest levels since April 2022. However, the currency is a little softer at the open today ahead of the ECB. Yesterday’s flash eurozone CPI data came in above forecasts, keeping the pressure on the ECB to push ahead with further tightening.

GBP Under pressure Ahead of BOE

Along with USD, GBP has been the weakest performer. The IMF’s warning that the UK will be the only G7 economy to suffer a recession this year, along with the ongoing political uncertainty there, is hampering investor sentiment. Yesterday saw the largest industrial action in the UK in 100 years with over half a million workers across various sectors striking in protest at pay levels. Today, the BOE is expected to hike rates by a further 50bps though expectations are split on whether the bank will signal any more hikes to come.

Gold Breaks Out – Crude Slumps

In the metals and commodities space, gold and silver turned higher on the back of the FOMC yesterday with gold breaking out to fresh highs on the year. Silver is pushing towards the top of the consolidation which has framed price action over recent months. Crude prices fell yesterday despite USD turning lower, reflecting ongoing concerns over the global demand outlook. The EIA reported a large 4.1 million barrel surplus in inventories, well above the -1 million barrel decline the market was looking for.