Powell Confirms June & July .5% Hikes, Crypto rebounds after heavy selling

USD Index rallies 1% as Fed chairman Powell confirms .5% hikes coming in June and July and notes possibility of larger hikes. BOJ’s Kuroda reaffirms commitment to maintaining easing. EU leaders fail to agree ban on Russian oil. Risk markets rebound on Friday, helping lift AUD & GBP, as markets stabilise following crypto collapse. Gold and silver bouncing off lows, oil edging higher as USD sees softer start on Friday. 

Key Factors for Today

• Fed’s Powell confirms further .5% hikes, doesn’t rule out larger hikes

• Equities rebound amidst risk recovery late Thursday/ early Friday 

• BOJ reaffirms commitment to easing 

• Risk rebound helps AUD & GBP

Coming Up

• Eurozone industrial production 

• USD prelim UoM consumer sentiment & inflation expectations

• Fed’s mester speaks 

US Dollar Ends the Week at Highs

The greenback is trading with a softer tone in early Europe on Friday, following weaker than expected April PPI data yesterday. However, this is likely just a pause in the rally with the US Dollar index ending the week at its highest level since 2002 following a 1% rally yesterday. 

Powell Confirms Fed Tightening Plans

Fed chairman Jerome Powell confirmed that further .5% hikes are coming in June and July as the central bank fights to control rampant inflation. Addressing recessionary fears, Powell noted that such hikes might “include some pain” and said that whether the fed can execute a soft landing might come down to factors beyond its control. Notably, while Powell said that the Fed is not “actively considering” a larger .75% hike, it stands willing to do more if necessary. In essence, putting a larger hike on the table.  

Risk Markets Rebound Following Crypto Collapse 

Equities markets have seen better buying across the European open today, extending the rebound seen into yesterday’s close.  Both the FTSE and the DAX are in the green today on the back of a late rebound driven by better action in US stocks yesterday. 

The collapse in crypto markets this week has been one of the key drivers of downside action in equities in action with traders forced to liquidate other assets in order to fund crypto margin calls. With cryptos rebounding off lows yesterday, this has helped alleviate some of that bearishness at the European open today. However, further downside is still a real risk today if USD starts to move higher again. 

GBP & AUD See Better Buying 

In FX, the rebound in risk appetite this morning is favouring those currencies which have been under most pressure over the week, such as AUD and GBP. JPY, which has been one of the strongest performers of the week has softened a little while USD is also seeing some pullback across the European open. 

BOJ’s Kuroda Reaffirms Commitment to Maintaining Easing 

Speaking this morning, BOJ’s Kuroda reaffirmed the central bank’s commitment to maintaining its massive bond buying program. Kuroda said that while it might be hurting market functions, it was necessary to maintain easing in a bid to get inflation to a stable and sustainable 2%. Finally, Kuroda noted it was premature to discuss exiting its easing stance. 

Gold & Silver Bid on Friday 

Gold and silver are bouncing off the lows today. Both metals have been under heavy selling pressure amidst recent USD strength and with the greenback likely to continue higher near term, the outlook remains skewed towards lower prices. 

Third Bullish Open for Oil 

Oil prices are finding demand once again on Friday with crude having rebounded by around 4% from yesterday’s lows. Negotiations among EU leaders to agree a ban on Russian oil continue to struggle as we end the week. Opposition from Hungary, as well as other countries including Greece, has led to a stalemate so far with some reported noting that such a ban will be delayed for now in favour of incremental phasing out of Russian energy.