Markets:
- AUD leads, JPY lags
- WTI crude oil down $1.66 to $94.77
- US 10-year yields up 1 bps to 2.17%
- US 2-year yields up 6 bps to 1.91%
- Gold up $11 to $1928
- S&P 500 up 2.1
The lead up to the FOMC rate decision involved steady selling in the US dollar on hopes for some kind of ceasefire or agreement from Russia and Ukraine. Headlines on that wavered but the 15-point plan report had an air of authenticity that suggested real progress and room for compromise despite scattered denials.
That helped to boost risk assets and softened the dollar (ex yen) across the board. The mood was also helped by earlier Chinese comments of support for domestic equities and sightly better covid figures (watch out for those later).
The retail sales data was largely ignored. The headlines were soft but revisions much stronger so it netted out. Canadian CPI gave a bit of a lift to the loonie but that was balanced out by sliding commodity prices. AUD and NZD fared much better than the loonie today, likely on hopes for Chinese stimulus.
The main event of the day certainly offered some volatility. The main takeaway from the Fed decision was 7 hikes in the dot plot for this year versus about 5 that most economists were flagging. That led to a push higher in front-end rates initially and a 60% implied probability of a 50 bps hike in May at the next meeting.
The dollar jumped on the Fed decision with USD/JPY breaking the 2016 high, which is a significantly level and cutting through 119.00.
It didn’t last though. When Powell began to speak, it reversed in a big way with USD/JPY down to 118.60 and the dollar falling harder elsewhere in some 60-80 pip swings.
I can’t tie that move to anything he said. Perhaps there were some looking for a clear nod to 50 bps or a faster pace of hikes but I find that thinking to be a stretch. More likely is that it was a reversion to the earlier theme and reveals that dip buyers have been waiting in the weeds for the Fed risk to pass. We’ve seen that before but it will take through the week to sort out whether it’s real or a temporary blip.