Stock rallies were temporarily disturbed last week with a seemingly surprising projection for the first potential rate hike "as soon as" the second half of 2023 instead of 2024 as mentioned in previous Federal Reserve’s (Fed) forecasts. On the contrary, Jerome Powell, the U.S. Fed’s head, has mitigated some market worries in a hearing before the House of Representatives panel on Tuesday, June 22. In fact, he performed just in a way, which market optimists expected from the official first rank Fed's frontman. As a wise steward, Mr Jerome Powell provided investors with one more round of reassurances while the trail of Fed's meeting was still hot, giving enough confidence that the central bank is monitoring inflationary spikes closely but is not rushing to hike rates at all, at least in the measurable future.
"We will not raise interest rates pre-emptively because we fear the possible onset of inflation. We will wait for evidence of actual inflation or other imbalances,” Powell said ad verbum. Fed's major goal is a broad labour market recovery while fear of inflation alone would not be enough to prompt rate rises, he indicated. It was just the necessary cherry on the cake he cooked during the Fed's press-conference last week when he already addressed a message to the media audience that "the [Fed's members] projections are individual projections and not a committee forecast ... they're not a plan", also emphasising that the Fed is not going to do any hawkish monetary moves for the next two years giving the markets all clearance to continue the stock rally.
By the way, the mostly rates-sensitive U.S. high tech Nasdaq 100 index closed at a fresh record high yesterday, snuffing out the budding fire of the bullish doubts' candle. Google jumped above $2545 per share, for the first time ever, while Amazon’s price exceeded $3500 per share approaching its own historical peak at $3552.20, which was initially set in August, 2020, on expectations of probably upbeat Prime Day discount sell-off results. It seems that both e-giants are almost ready to aspire to their new highs because of corporate financial fundamentals, but generally comfortable investment climate induced by Fed's "money printer" is also indispensable.
Other Fed public figures also maintained the extra dovish reputation of the U.S. regulator. New York Fed chief John Williams, in an interview on Bloomberg TV, he said that a discussion about raising interest rates is still some way off. These comments seemed to disappoint some bulls as the U.S. Dollar almost reversed the so-called hawkish tone found by some experts inside Fed's dot-plot projections. Of course, they could find some consolation in the excerpts from San Francisco Fed President's Mary Daly speech, who said that the "substantial further progress" in the recovery, which the Fed has made a precondition for starting to tighten policy, was within reach this year. The Fed’s agenda may continue later on Wednesday, when Federal Open Market Committee (FOMC) members Michelle Bowman, Eric Rosengren and Raphael Bostic speak at different events.
The U.S. Dollar index gained about 2% last week, it was indeed the biggest weekly rise since March 2000. It was prompted by a decrease of yields for the U.S. ten-years bonds, from 1.6% till 1.36% at Monday's low. Therefore, the U.S. Treasury got some relief with some lower rates to service the enormous national debt, and maybe that was the main purpose of rather falsely hawkish Fed's interest rate projections. But that is definitely not such a substantial change for the markets, and after that the yields quickly recovered above 1.5% again. In accord, the U.S. Dollar gave up about a third of its initial gains too. The Greenback was firm against most major currencies last week, and it was even close to its highest values for the current year at 110.80 against the Japanese Yuan, reaching below 1.19 levels for EUR/USD. The Aussie also lost some ground below 0.75 against the U.S. Dollar for a couple of days but today it is already trading above 0.7570 again.
"The risk of U.S. monetary policy being normalized sooner rather than later will continue to offer the dollar support, but it is unlikely to be the dominant factor in currency markets," Gavekal strategists argue in favour of their neutral positioning on the U.S. currency. "On balance, the scorecard points" to the U.S. Dollar that facing "headwinds is likely to remain on a depreciating track." It seems reasonable to agree that the potential EUR/USD recovery inside the 1.17-1.22 range, keeping in mind targets close to 1.25 plus accompanied with a slow shifting of AUD/USD to a higher range of 0.77-0.80 again, looks more worthy of belief now.
Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.
Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77.94% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.
© 2011-2022 Teletrade-DJ International Consulting Ltd
Teletrade-DJ International Consulting Ltd is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11.
The company operates in accordance with the Markets in Financial Instruments Directive (MiFID).
The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Teletrade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.
TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.
Teletrade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.