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The US central bank decided a jumbo 75-basis points rate hike, and the accompanying statement suggested policymakers would soon slow the pace of quantitative tightening.
US Dollar Biggest Winner From Fed’s Decision
The US dollar finished Wednesday higher across the board following a volatile American session. The US Federal Reserve was behind the dollar’s wild moves by hiking interest rate as expected, but the surprise came with Fed Chair Jerome Powell who adopted a apparently hawkish stance.
“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” The US dollar retreated to fresh weekly lows against most major rivals as investors rushed to price in a 50 bps rate hike in December.
However, Chair Jerome Powell’s speech changed everything, and even brought dollar buyers back to the run. Powell noted that inflation needs to be taken down “decisively,” adding they are ready to change the monetary policy as needed.
Powell also mentioned that slowing the pace of rate hikes will become necessary at some point but also that it may take time for inflation to come down, and therefore, a restrictive policy stance should stay for some time.
Economic Data
Companies added 239,000 positions in October, ahead of the Dow Jones estimate of 195,000 and up slightly from the previous month, ADP reported Wednesday. Most of the gains came from the leisure and hospitality industry, which added 210,000 positions while wages rose 11.2% for the sector. Wages overall rose 7.7% from a year ago, down just slightly from the September pace.
The Energy Information Administration on Wednesday reported that U.S. crude inventories fell by 3.1 million barrels for the week ended Oct. 28. On average, analysts forecasted a decrease of 1.6 million barrels, according to a poll conducted by S&P Global Commodity Insights. The EIA also showed a weekly inventory decline of 1.3 million barrels for gasoline, while distillate stockpiles edged up by 400,000 barrels.
Other Developments
The EUR/USD pair trades in the 0.9820 price zone after posting a fresh weekly high of 0.9975. GBP/USD plummeted below 1.1400, while AUD/USD trades around 0.6350. The USD/CAD pair is currently advancing above 1.3700. The dollar also gained against safe-haven rivals. USD/CHF is above parity, while USD/JPY trades around 147.80.
It is noteworthy that Jerome Powell noted that the ultimate level of rates would be higher than previously expected. His words revived the odds of a fifth 75 bps in December. Stocks fell, T-yields surged, and the dollar soared.
Meanwhile, speculation that China could ease its zero-covid policy was erased after the country announced a new lockdown, this particular one, involving the area around the world’s largest iPhone factory, spurred concerns at the beginning of the day.
Gold advanced at the beginning of the day but finished it at around $1,636 a troy ounce. According to preliminary EIA data, US imports of Saudi crude oil increased 208k bpd to 533k bpd for the week ending Oct. 28, according to preliminary EIA data, unexpectedly boosting oil prices. WTI eased at the end of the day amid plummeting equities but still closed in the green at $89.20 a barrel.
The Bank of England is expected to announce the biggest interest-rate increase in 33 years on Thursday as it tries to re-establish authority after weeks of political and financial market turmoil.
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