The dollar’s rise has been extended after the Fed announcement. The DXY index of the dollar has reached a new two-month high, 91.85. It is also up nearly 1.5% in the last day. EUR-USD also hit a new two-month-low at 1.1926 while USD-JPY reached an 11-week high at 110.82.
USD-CAD reached a new six-week high of 1.2346. This was backed by a combination of a wider U.S. versus Canadian yield differential and a fall in oil prices. The Fed’s hawkish stance has unsettled the commodity markets. Many currencies from developing countries were also affected.
The rise in U.S. Treasury rates has coincided with dollar gains. Yesterday, the policy-sensitive yield on 2-year notes spiked by over 4 bp to a one-year high above 0.205%. Markets will continue their adjustment to the post FOMC sea change.
Recap: The Fed made significant upward revisions in growth and inflation. Seven Committee members are expecting to receive a pay increase as early as the year 2022. The current Dots display not just one but Two rate hikes are expected in 2023. Powell tried to dispel concerns about a possible policy change in the near future, but inflation is still a major factor that will continue to drive market direction.
The Fed still believes that most of the inflation risks will be temporary, due to the combination of statistical base effects from the pandemic era and supply bottlenecks which are set to break. Some investors have put a lot of weight on policy risks.
They argue that the level of fiscal expenditure in major economies has a similar effect to a structural change, and the U.S. economy, especially, is set to grow much faster than it has for the past few years. It was noteworthy that the G7 Summit leaders sent out a number of messages. The cry for help was loud and clear. “spend, spend, spend”. We expect the dollar to continue its upward trend.
It is important to note that the word “you” means “you”. markets today The FOMC will continue to be digested for its slightly more hawkish attitude. There could be a recovery after the post FOMC selloff.
Now, we will return to the data. The weekly calendar shows initial jobless claims. Initial claims should drop by 6k and reach 370k. That would be an all-time low. Continued claims are expected to drop 19k, or 3.480 mln. The June Philly Fed index is penciled in at 33.0 from 31.5.
May leading indicators are forecast to have risen 1.6%, as they did in April. The Treasury announces reopened 2-year FRNs, 2-, 5-, and 7-year notes, and auctions $16.0 bln of reopened 5-year TIPS. Adobe and Kroger report the only earnings reports with larger cap companies.
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