Spreadex Market Update
USD Breaks out Again As Traders Eye Larger Fed Hike Today
USD saw strong gains again yesterday as traders adjust expectations for a larger 75bps Fed hike today. Equities tank on USD surge. EUR rallies on ECB news, hawkish announcement expected. GBP sinks on recession fears. Metals and oil lower on USD rally.
Key Factors for Today
- USD saw strong gains yesterday on hawkish Fed expectations, traders brace for today’s FOMC meeting
- Equities sink on hawkish Fed expectations
- EUR rallies on ECB ‘ad-hoc’ meeting news and hawkish expectations
- JPY rallies on safe-haven flows
- Commodities hit by stronger US Dollar
Coming Up
- USD US retail sales
- EUR ECB ‘ad-hoc’ meeting
- USD June FOMC
Hawkish Expectations Into Today’s FOMC
The US Dollar starts FOMC day on a slightly weaker footing as traders brace for the main event later today. Yesterday, the Dollar broke out to fresh 2022 highs, bolstered by a hawkish shift in fed expectations. Reports of a “leaked” Fed discussion regarding a potential 75bps hike today have thrust the Dollar back into the limelight. The Fed is reportedly considering opting for a larger hike on the basis of the unexpected strength in May’s CPI data.
Given these fresh expectations, should the Fed stick to the originally signalled 50bps hike, this would likely be met with disappointment by USD bulls. Along with the hike itself, traders will be watching to see how the Fed’s rate path projections have changed. Any sign of a potential pause in rate-hikes after July would also be negative for USD.
Risk Sentiment Rocked by Hawkish Fed Expectations
Equities markets saw widespread losses yesterday amidst the uptick in hawkish Fed expectations which saw USD breaking out higher. Most markets are starting with an offered tone across the European open on Wednesday. The Nikkei is now down almost 8% from last week’s highs while the Nasdaq has fallen to fresh 2022 lows, down 12% from the June highs. A bullish USD outcome later today will drive markets even lower if seen.
EUR Rallies on ECB News, GBP Sinks on Recession Fears
In FX, EUR has been the big winner in response to news of the ECB calling an “ad-hoc” meeting today (unplanned monetary policy meeting) to discuss “current market conditions.” The market is widely expecting some form of hawkish action, driving EUR higher. EURGBP broke out to its highest level since Feb’ 2021 yesterday. JPY has been stronger also, rallying on better safe-haven demand amidst the current equities rout. GBP among the weakest performers as a recent string of concerning data stokes recession fears in the UK.
Metals Plunge on USD Rally
Gold and silver prices are starting the European session on Wednesday with better demand. However, traders might remember this same start from Tuesday and Monday with both days turning into losing sessions for the metals as USD rallied. If we see a hawkish Fed outcome tonight, we can expect metals to come under pressure again on a bullish Dollar move.
Oil Traders Await EIA Release
Oil prices have been weaker again today with crude futures now down around 4% from weekly highs as the USD rally finally takes its toll. Aside from the main data event today we also have the latest weekly update from the EIA which is expected to record a more than 2-million-barrel drawdown in US crude stores.
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