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US equities went into their cash session on a high after a drop in import and export price inflation fuelled hopes that the peak is in and of a more dovish Fed. These hopes were dashed by Jerome Powell near the end of the session, delivering a 50bp hike to the US target rate and giving what was seen as a hawkish accompanying statement and presser.
The broad S&P 500 started the session above the important 200-day SMA level, which has been a level of stiff resistance, and finished below, down 24.33 points or -0.61%.
While the 50bp hike was almost fully priced in, and a welcome relief from the recent burst of 75bp hikes, the hawkish presser by Chair Powell where he dashed hopes for any imminent Fed pivot saw risk assets tumble and the US dollar rally sharply.
Interestingly the USD rally didn’t last long and retraced not long after showing that rates markets and by extension FX markets aren’t fully buying the Fed’s hawkish expectations with Major FX pairs continuing their grind higher against the Greenback. The GBP continued it’s stellar run, now having rallied 20% from it’s October Gilt chaos inspired lows and breaking through the resistance level of 1.2330, levels not seen since June.
All eyes will now turn to a very busy session in Central Bank action with the Swiss National Bank, Bank of England and European Central bank all expected to hike official rates by 50bp on Thursday, again you would expect the actual hike reaction to be subdued, it will be accompanying statements and pressers where clues of future actions will drive volatility, trade accordingly.
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