Hawkish Fed Commentary Sees USD Sell Off Pause For Now

Following some of the more dovish Fed commentary we heard earlier in the week, notably from Fed’s Brainard and Daly, the back end of the week has seen hawks having their say. Yesterday, Fed’s Bullard said that he felt the central bank needed to push harder with rate hikes. Given the jump in inflation, Bullard called for rates to peak around 5% - 7%, well above the current peak projected by the Fed.

These comments come on the back of Fed’s Williams who called for at least a further 1% of tightening before the Fed might even consider pausing. While the comments failed to inspire a fresh rally in USD, they were enough to help stem the decline with DXY continuing to tread water around the middle of the week’s range.

Key Factors for Today

• USD stable following hawkish Fed commentary
• Equities prices slip as risk backdrop weakens – fresh Russia/Ukraine fears and hawkish Fed comments
• GBP leads FX following UK budget with traders reassured by hardline economic approach
• Metals and oil soften as USD sell off pauses – Oil hurt by weaker demand outlook

Coming Up

• EUR – ECB’s Lagarde speaks
• USD – Fed’s Mann speaks
• USD – US Existing home sales

Equities Slide Continues as Risk Backdrop Weakens

Equities markets continue to soften into the end of the week with most indices relinquishing their gains amidst the paused USD sell-off. Risk sentiment has also been muddied by a fresh escalation in Russian aggression against Ukraine. The stepping up of Russian missile attacks against Ukraine this week shows that the conflict is far from over and marks a sharp U-turn from Putin recently citing intentions to pause his “special military operation” there. Indices across the board have are trading lower on Friday

GBP Stronger on Back of UK Autumn Budget 

In FX, GBP remains strong into the end of the week, having been one of the top performers of the last few days. Yesterday, the new UK chancellor delivered a sobering Autumn budget with around £55 billion worth of tax hikes and spending cuts. Hunt warned of hard times ahead for the UK economy with the current recession pegged to last until at least the end of next year. The reaction in GBP suggests the market is reassured by the chancellor’s approach, marking a stark contrast from the turmoil we saw in response to the controversial mini-budget delivered by the last UK government.

Metals & Oil Weaker as USD Sales Pause

In the metals and commodities space, both gold and silver have pulled back from the highs of the week following the loss of downside momentum in USD. With little on the data sheet today, flows might well prove quiet. USD movements will be the key driver to note with metals bulls hoping for fresh USD downside to help lift prices once again. Crude oil prices continue to weaken on Friday. Crude futures are now down more than 13% from the month’s highs following OPEC slashing its demand forecasts for the year ahead. With USD stabilising, crude has come under further pressure.