USD Falls As Fed Hikes Rates But Sounds Less Convincing on Further Hikes

The US Dollar is trading lower on the back of last night’s FOMC meeting. As expected, the Fed hiked rates by 75bps, refraining from a larger 100bps hike. However, it was the post-decision press conference which seemed to cause issues for USD bulls. While Fed chairman Powell acknowledged that inflation was still elevated, USD slipped as Powell noted that the Fed funds rate was now in the area that the bank considers neutral. Powell has previously warned that the Fed is willing to lift rates above neutral if necessary. However, alongside comments acknowledging the slowing pace of spending and production recently, these comments were taken as a sign that the Fed is preparing to ease off on the pace of further rate hikes over the year. 

Key Factors for Today

• Fed hikes rates by 75bps, says rates around neutral, acknowledges slowdown in economic activity – Q2 GDP up later 

• US stocks rally on weaker USD, better US earnings

• Broader markets fall on recession fears 

• JPY leading in FX

Coming Up 

• USD US Q2 GDP adv

• USD US Unemployment claims 

• USD Yellen speaks 

US Markets Rally Post-FOMC

US stocks have risen firmly on the back of the FOMC. A softer US Dollar has been welcomed across the board with the S&P and the Nasdaq both pushing to fresh highs on the week. The more neutral tone from the Fed was accompanied by some better earnings data which also helped lift market spirits. 

Better Earnings Lift US Sentiment

Qualcomm, the largest maker of smartphone chips, reported earnings and revenues both above Wall Street estimates, despite noting weaker consumer spending. Ford also recorded higher earnings and revenues while detailing plans to cut staffing levels in a bid to fund its new electric-vehicle operations. Music streaming giant Spotify also saw revenues jump on higher-than-expected subscriber growth. 

Meta Reports First Sales Decline

There were some weak spots within the earnings sheet yesterday, however. Meta Platforms (formerly Facebook) recorded its first ever sales decline in Q2. The group cited recent economic disruption as causing a shrinkage in advertising spending on its platforms. Aeroplane manufacturer Boeing also recorded weaker earnings and revenues, noting large losses in the company’s defence unit as the key driver behind the weaker performance over the period. 

Broader Markets Soften on Recession Fears

Away from US stocks, however, we are seeing broad selling across European, UK and Asian asset markets. Higher Dollar rates, ongoing recessionary concerns and continued COVID disruptions are leaning on sentiment. The DAX remains under pressure over growing fears of a gas crunch in European as EU leaders agree an emergency plan to further reduce European reliance on Russian gas in the wake of Gazprom cutting supplies once again. 

JPY Leads on Safe Haven Demand

In FX, a weaker US Dollar has seen JPY rising to the forefront as the strongest performer over the European open today. Taking their cues from the broader drop in risk assets, traders have been rushing back into the safe-haven currency. AUD and GBP are a little behind the Yen while the Swiss Franc, along with the Dollar is seeing the least demand this morning. Today, traders will be focused on the first glimpse of US Q2 GDP which has the potential to drive USD further lower if we see any weakness.