Spreadex Market Update
Fed Signals Tighter Policy, Pound Weakens, and Commodities Decline
The latest financial market news is marked by the Federal Reserve's surprising shift towards a tighter policy stance, which has bolstered the US dollar and sent ripples across global markets.
Key Factors for Today
- Dollar Strengthens as Fed Signals Tighter Policy
- UK Inflation Drops More Than Expected, Weighing on Pound
- WTI Crude Falls Amidst Fed's Hawkish Pause
- NZ GDP Growth Surprises, Fails to Boost Kiwi
Market Movers
- The US dollar gained momentum as the Federal Reserve hinted at multiple 2023 rate hikes, taking the 2-year yield to its 2006 peak. This caught markets off guard, strengthening the dollar against various assets.
- UK inflation's drop to 6.7% from an expected 7.1% raised recession concerns, and coupled with the strong dollar, pushed the pound to $1.2310.
- Despite a 2.1 million barrel inventory drop, WTI crude fell 1.50% due to the Fed's hawkish stance, potentially targeting $87.80/bbl if it dips below $90.60.
- NZ's GDP growth surpassed expectations at 0.9%, but the NZD struggled, closing at 0.5928 against the USD amid a broader dollar rally.
Economic Calendar
- SNB Interest Rate Decision
- TCMB Interest Rate Decision
- BOE Interest Rate Decision
- Jobless Claims
- ZA Interest Rate Decision
- ECB President Lagarde Speech
- Existing Home Sales
- ECB Schnabel Speech
- NZ Westpac Consumer Confidence
- Judo Bank Manufacturing PMI
- Gfk Consumer Confidence
- JP Inflation Rate
The Big News
Fed's Hawkish Turn Boosts Dollar to Fresh Highs
The Federal Reserve's shift towards a more hawkish monetary policy stance has taken centre stage in the financial world. Despite keeping interest rates unchanged, the central bank's "dot plot" revealed support for a higher terminal rate in 2023, ranging between 5.25% to 5.75%. Moreover, Fed officials indicated fewer rate cuts in 2024 and 2025, citing elevated inflation risks and expectations of improved economic growth and employment. This hawkish stance propelled the US dollar to fresh 2023 highs, with the DXY surging above 105.44, aiming for the next resistance level near 105.90.
UK Inflation Drop Sparks Pound's Decline
In the United Kingdom, inflation data delivered a blow to the pound. The CPI measure of inflation dropped to 6.7% from an expected 7.1%, raising concerns about a potential recession. Coupled with the dollar's strength, the pound dipped to $1.2310, with the next support level expected at $1.2278.
Crude Oil's Dilemma: Hawkish Fed Hits Prices
The crude oil market faced a conundrum. Despite a substantial drawdown in inventories, WTI crude oil prices declined by 1.50% due to the Fed's unexpected hawkish stance, which boosted the US dollar. Should WTI drop below $90.60 per barrel, further profit-taking could ensue, potentially pushing prices towards the $87.80/bbl support level.
Kiwi Struggles Despite Strong NZ GDP Growth
New Zealand's GDP growth exceeded expectations, posting a quarterly expansion of 0.9% compared to the anticipated 0.5%. However, this positive data failed to lift the Kiwi amid a broader dollar rally. The NZD/USD pair closed slightly lower at 0.5928, with the possibility of further downside if the 0.59 handle is breached.
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