MARKET WRAP – 23rd June 2022
- Dollar was lower Wednesday and hit a trough of 103.850 as analysts note a brace for further Fed hikes and the possibility that accelerated monetary tightening could hasten the arrival of lower inflation and possibly a recession, impacting the Dollar.
- Bank economists are racing to move their US recession probabilities up from 20/30% to 50% and the price of just about everything is falling. Oil, lumber, wheat, gasoline, crypto, equities, copper down.
- Canadian inflation above exp. across all metrics; Jordan says SNB may need to hike again.
- A Fed research paper showing the US economy facing elevated risks of a recession over the next one to two years, with just over a 50% chance of a recession over the next year.
- Meanwhile, headlines drew attention to Chair Powell refusing to rule out a 100bps hike when pressed on it in his Senate hearing amplifying concerns over a hard landing.
- Note that money markets are seeing the Dec’22/March23 futures start to flirt with inversion, while 2yr and 10yr yields are back down to levels not seen since the May CPI release on June 10th.
- Aussie and Kiwi both saw more pronounced losses, as previously mentioned, but clawed back some of the lost ground as the risk-aversion faded. As such, AUD/USD traded between a range of 0.6973-0.6882, whilst NZD/ AUD parameters were 0.6337- 0.6245 but both are well off the extremes.
Federal Reserve J,Powell Senate Testify breakdown
- Chair Powell testifying to the Senate reiterated much of his usual tone, but he did say he will never take anything off the table when asked about a 100bps rate hike, reaffirming his hawkish remarks that the policy rate is still at a relatively low level and wants it up to a more ‘neutral-ish’ level.
- Moreover, the Chair added additional rate increases are priced in and this is appropriate, and reiterated ongoing rate hikes will be appropriate with the pace dependent on data with decisions made
“meeting by meeting”.
- On the June meeting, Powell added he was persuaded that it was important that a 75bps hike was made. Harker (2023 voter) said the Fed needs to get to a neutral rate of 2.5% quickly and should be above 3% by year-end, whilst a 75bps hike helps Fed get to neutral.
- On the July meeting, Harker added he is not yet ready to decide whether to back 50bps or 75bps. Evans (non—voter; departing) spoke heavily again, and stated the Fed will need to raise interest rates “a good deal more” over coming months, whilst noting there are many risks to the downside and must be ready to adjust its policy stance.
- Lastly, Evans later remarked 100bps hike isn’t necessary, and 75bps hike in July would be in line with continued concerns that inflation isn’t slowing. However, by year-end he thinks the Fed will be doing 25bps hikes.
TODAY’S KEY RISK EVENTS
- COMING up: Data: Australian, EZ, UK & US Flash PM’s, US IJC Events: Norges Bank, CBRT & Banxico Policy Announcements, US
- Bank Stress Test Results Speakers: Fed’s Powell (House Finance Committee).
Source FX Street
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