Dollar dips, stocks rip after Fed hikes

Equities prices have seen better demand in the wake of the FOMC meeting yesterday. A weaker post-FOMC USD has allowed investor sentiment to bounce back through Asia and into the European open with the FTSE and the DAX both higher.  The Fed came through with a .5% hike as expected, assuaging fears of a larger .75% hike. Attention now shifts to the UK with the Bank of England meeting today for the May MPC. 

Key Factors for Today

• Risk assets higher following FOMC
• Oil and gold higher following USD correction 
• BOE expected to raise rates today 

Coming Up

• BOE meeting due 
• US unemployment claims 
• RBA monetary policy statement 

Fed Hikes Rates by .5%, Pushes Back Against More Aggressive Action

Risk markets appear to be reflecting a sense of relief today. Despite the Fed hiking rates by .5% at the May FOMC meeting yesterday, markets avoided a potential .75% hike which some feared the Fed might opt for in light of the ongoing surge in inflation. With a .5% hike well-signalled ahead of the meeting, the more aggressive among the USD bulls were entertaining the prospect of a larger hike, linked to commentary from some Fed members ahead of the meeting. 

However, at the meeting, Powell pushed back firmly against any such larger moves, highlighting .5% as the upper end of the Fed’s monthly policy rate increases. Furter .5% hikes are now slated for June and July. The US Dollar traded lower in the wake of the meeting, pulling back from 20 year highs on the Dollar index though we are seeing better demand again over the European open today. 

Bank of England Expected to Hike by .25% Today

In the FX space, the focus now shifts to the BOE meeting today. GBP is trading lower heading into the event, which is widely expected to see the bank hiking rates by at least a further .25%. However, growth concerns have started to plague the UK outlook, resulting in a weaker GBP on the back of the last BOE hike potentially setting the scene for a similar move today. 

Gold & Oil Rally on USD Pullback

Gold and oil have both benefitted from the pull-back in USD overnight. Gold prices are now enjoying their third consecutive positive session amidst firm buying over the European open. The extent to which gold can rally further here will likely depend on how high equities can move from here. Oil prices are deriving support from headlines reporting that European leaders aim to ban Russian oil imports over the next 6 month in a bid to bolster the economic sanctions on Putin. With oil supply already heavily disrupted, news of such action is likely to keep oil prices supported near term.