The U.S. Dollar is falling this morning after being dominant after the whiplash experienced by markets on Wednesday with the Fed's “bait-and-switch” message over future interest rate increments.
Overview
Indeed, Chairman Jerome Powell’s press conference following the expected 75-basis-points hike made it clear that while the written decision explained there would be a consideration to slow down the pace of hiking, the final interest rate will be higher than what was previously forecast to be. Rates will keep rising at a slower pace but to a higher point when they feel it has become sufficiently restrictive.The goal of the Fed is to slow down the economy, but the inflationary and unemployment gauges have not shown that, thus far, the economy has been easing. Earlier release of Non-Farm Payrolls for October showed that jobs keep rising, with the actual figure coming in at 261K vs. only 193K expected. The Unemployment Rate went up slightly from 3.6% to 3.7%, showing that labor remains stable and demand will likely stay up, thus making it harder to combat inflation. Currently, markets are not upset that the Fed sees the need to keep increasing borrowing costs, so we will watch for how long that narrative holds.
What to Watch Today…
- No major economic events are scheduled for today
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EUR ⇑
Euro gains have been pronounced this morning ever since the market reaction to the Employment Situation data. It seems like markets are looking ahead instead of worrying about the increase in borrowing costs that will keep accumulating, per Jerome Powell’s words. The EU data certainly paints a slowdown in Germany, some surprising Services advancement in Spain, and doubts over Italy’s ability to govern with a relatively low margin of the majority to pass legislation. These things are not new, but one thing that is fresh now comes in the form of a more relaxed Europe over winter as the weather has kept things unseasonably warm. The result has been the need for fewer fuels to heat an economy, which provides Russia with an undesirable scenario where they hold fuels that no one is desperate for.
GBP ⇑
Sterling is looking to erase losses following the dovish Bank of England meeting that stated increasing interest rates too much can start devastating the economy. Andrew Bailey explained that BOE officials have acted to try to fight inflation but will also slow things down in order not to put the country at risk of a 2-year recessionary period. Brexit woes have dramatically slowed down trade between the EU and the U.K., only making it harder for economic growth to emanate. For now, the Pound is up, but it is highly volatile.
