A hawkish Fed Pivot – Is the USD Rally Transitory?

USD FUNDAMENTAL HIGHLIGHTS:

• A hawkish Fed Pivot – Is the USD Rally Transitory?
• Was it the Fed or the FT that Marked the USD Backside

A hawkish Fed Pivot – Is the USD Rally Transitory?

A hawkish shock from the Federal Reserve, with the essential takeaway being that the dot plot has shifted in the direction of two charge hikes in 2023 from a earlier of zero. Expectations heading into the discharge had been a 50/50 name that the Fed would shift to just one charge hike in 2023. Due to this fact, with the dot plots way more hawkish relative to expectations, USD bears have been squeezed as greenback funded carry trades unwind. That mentioned, given the dimensions of the transfer in brief order, the buck is beginning to look overextended.

Was it the Fed or the FT that Marked the USD Backside

I famous in the beginning of the month that there had been a rise in “demise of the greenback” reporting and coincidently, that has marked the low level within the buck (up 3% since report revealed). As I mentioned beforehand, this generally is a widespread occurance the place an asset performs in the exact opposite path as to what {a magazine} cowl had signalled. The contrarian view being that when a story is displayed on {a magazine} cowl, the narrative is often properly embedded out there and arguably run its course. (Click on right here)

US Greenback Chart: Each day Time Body

Supply: Refinitiv

Looking forward to subsequent week, with there being on the financial calendar, I think markets will proceed to digest the Fed shock. Upside dangers prone to persist for the buck vs low yielding currencies (EUR, CHF) and will equities prolong losses in what is usually a seasonally weak time for danger belongings, commodity currencies may be anticipated to weaken additional.

USD Chart: Each day Time Body

Supply: Refinitiv