The U.S. Dollar is trading in better ranges than it did following the Federal Reserve’s meeting and press conference.
Overview
Just as expected, the FOMC decided to increase its interest rate by 75 basis points to 2.5%. The committee was in consensus and the lack of a 100bps move made for a less hawkish Fed than the Bank of Canada. Naturally, the buck started losing ground and equities bounced. More importantly, Fed Chairman Jerome Powell explained that officials are likely to be more data-dependent when it comes to making decisions on increases, thus expecting to get less guidance. Additionally, he reinforced the idea that eventually the Fed will slow down its willingness to increase borrowing costs.In terms of U.S. economic data, figures revealed a slowdown this morning. Gross Domestic Product growth in the second quarter was evaded as the economy contracted (-0.9) instead of meeting its estimated of expanding by 0.4%. Initial Jobless Claims for last week were higher than the 250K expected, the second week in a row it does that.Personal Consumption for Q2 also came in less than expected at 1.0% vs. 1.2% forecast. Meanwhile, Core Personal Consumption Expenditures rose by 4.4% as expected. Indeed, the recessionary pressures are here with ongoing “stagflation” as prices keep rising while productivity cools down. Powell explained that this would not be a shocker for the remainder of the year. On the positive side though, the Senate advanced a bill to spend on energy security and address climate change.
What to Watch Today…
- No major economic events are scheduled for today
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EUR
The Euro tumbled in contrast to its reaction yesterday immediately following the U.S. Fed policy decision announcement. However, the shared currency is quickly losing what it gained as reality sets in that U.S. notes come with a guaranteed higher interest rate.
Surprisingly though, equities in Europe rose as some of the largest manufacturers revealed better-than-expected profits. Nevertheless, Confidence in the Euro-zone declined to its weakest level in a year and a half. Expect volatility, we are getting it.
GBP
Sterling has not fallen dramatically, but it remains subdued as the Federal Reserve looks determined to hike more and puts into doubt the ability for everyone else to follow suit. The economy in the U.K. has also shown signs that it is cooling down as the higher interest rates put downward pressure on activity.
It is worrisome that currently, trade deals are in legal havoc and that at a time of energy scarcity the EU and U.K. keep battling in courts. Data being light this week means eyes will be on any updates out of the campaigning for PM.
