Spreadex Market Update
Powell Signals Support For Fed Pause
The US Dollar starts the new week on a softer footing following dovish comments from Fed chairman Powell on Friday. On the back of a slew of hawkish Fed comments, the Fed chair was seen voicing his support for slowing the pace of rate hikes. While Powell noted that rate decisions would still be made on a meeting-by-meeting case, he said that tighter credit conditions mean the bank’s monetary policy likely wouldn’t need to rise as much as it would otherwise to achieve the Fed’s goals. Pricing for a June rate hike has fallen by around half since the comments, now around just 17%.
ECB’s Lagarde Says More Tightening Needed
While Powell was seen pushing back against hawkish market expectations, ECB chair Lagarde was seen going the other way. Lagarde cited the need to continue on with hiking noting that inflation was still too high and more needed to be done. Given the lack of commitment to further tightening seen at the last meeting, many had begin speculating that the ECB would soon pivot on rates. However, Lagarde’s comments have fuelled fresh support for EUR with a June rate hike now firmly on the table.
US debt ceiling negotiations continue to dominate news flows. Talks broke down on Friday before resuming again over the weekend. A further meeting between Biden and McCarthy is due today against a backdrop of warnings over the looming deadline. Treasury Secretary Yellen says the government will run out of funds by June 15th if a deal is not done immediately.
Equities look to be starting the week with a strong tone, recovering from the weakness seen on Friday. Uncertainty around debt ceiling negotiations hit equities. However, most indices are back in the green on Monday with the Nikkei pushing ahead further into fresh highs on the year. US stocks are gaining ground also with both the S&P and the Nasdaq moving back towards highs following the correction on Friday.
In FX, safe-havens have been the strongest performers over the European open. Both CHF and JPY have seen decent demand so far today, likely reflecting residual uncertainty on the back of US debt talks breaking down on Friday. However, with further talks scheduled today, we could see a firm reversal in this dynamic if any positive progress is made. GBP and AUD have been the weaker performers so far today. Flows likely to be muted on Monday given a quiet data calendar for the day.
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