Fed Delivers 4th Consecutive 75bps Hike – USD Rallies As Powell Projects Higher Peak

Yesterday saw plenty of volatility in reaction the FOMC though, ultimately, we’ve seen USD stronger on the back of the meeting with stocks tanking. The Fed pressed ahead with the expected 75bps rate hike. Stocks were initially buoyed by the accompanying statement from the Fed which seemed to lack any material hawkish threats, feeding into the narrative of a slowing pace of hikes In the near-term.

However, during the post-meeting conference Powell noted that the fed would need to push on with further hikes while the labour market remains in excess supply and inflation remains at record highs. Furthermore, the Fed now forecasts rates need to a higher peak than initially projected in order to calm inflation with Powell noting that it would be very premature to talk about pausing.

Key Factors for Today

• USD rallies as Fed upgrades rates outlook, projecting higher peak
• Stock markets tumble as bond yields turn higher following Fed
• Risk FX lower amidst USD rally – safe havens rallying
• BOE to hike again today
• Oil and metals hurt by USD rally

Coming Up

• GBP November BOE Meeting
• USD US ISM Non-Manufacturing
• USD US Weekly Unemployment Claims

Stocks Fall Following Hawkish FOMC

Equities prices tanked yesterday in response to a hawkish FOMC from the Fed. With rates now forecast to rise above the peak initially projected we’ve seen bond yields turning higher again today putting pressure on asset markets. US stocks were the worst hit with the Nasdaq falling almost 5% yesterday, its largest one-day loss since mid-September, and the S&P plunging almost 4%.

Coinbase Earnings on Watch

US earnings season continues today with more big names to look out for. Coinbase, PayPal and Starbucks all report today and traders will be particularly keen to see how Coinbase performed over the last quarter in light of the ongoing dirge in crypto trading as digital market volatility dries up. Coinbase shares are currently down around 50% from YTD highs on the back of two consecutive quarters of missed earnings and look vulnerable to a fresh break lower here.  

Risk FX Rocked by USD Rally

In FX, resurgent strength in USD has ripped through G10 FX this week with risk currencies sent reeling. AUD and NZD are among the worst performers today, both down almost 1% against the Dollar. The RBA’s recent rates pivot now opens up monetary policy divergence between itself and the Fed, putting AUD at risk of further losses near-term.

BOE Expected to Hike Again

GBP is trading lower today ahead of the November BOE meeting. The BOE is widely expected to lift rates by a further 75bps in light of inflation having returned to 40-year highs last month. With growth concerns piling up, this latest rate hike is likely to further dampen economic sentiment in the UK, putting GBP at risk of further losses.

Stronger USD Weighs on Metals & Oil

In the metals and commodities space, both gold and silver turned lower yesterday in response to the FOMC outcome. Gold prices are now close to testing YTD lows though silver prices have been a little more resilient so far. Crude prices have also turned lower today with crude future softening from the highs of the week posted yesterday ahead of the FOMC. The EIA reported another large, unexpected 3.1 million barrel drawdown yesterday which is helping underpin the market here somewhat.