Market Drivers – US Session 14/12/2022

The Fed decided a 50-basis point rate hike as expected, while the policy statement was closer to a copy of the previous one. The US central bank is still adopting reserved language about the possibility of recession, but with most Fed officials considering downside risks, it is fair to say policymakers are more worried about the economic outlook than they are willing to express it overtly.

The US dollar’s performance is negative after the FOMC decision. Financial markets were pretty much on hold ahead of the event, with major pairs confined to tight intraday ranges.

Fed Chair Jerome Powell maintained apparently hawkish comments. Powell noted that the ultimate level of rates is more important than how fast to go, adding that the FOMC needs to hold rates at their peak until policymakers are really confident inflation comes down in a sustained way.

Finally, he said that the focus remains on moving the policy stance to become restrictive enough, not on rate cuts. Powell’s comments impacted US stocks, as US indexes fell but the dollar was able to post some advance. Later during the US session, the dollar quickly resumed the downtrend as stocks bounced off their lows.

FOMC statement noted that “the Committee anticipates that ongoing increases in the target range will be appropriate.” Additionally, the Fed’s revised Summary of Economic Projections (SEP), the so-called dot plot, showed that the median view of the policy rate at the end of end-2023 stood at 5.1%, up from 4.6% in September’s SEP. Finally, growth forecasts have been downwardly revised for 2023 and 2024, while PCE inflation was upwardly revised to 3.1% from 2.8% for 2023, also adjusted to the upside in 2024 and 2025”.

Powell also said that the focus would remain on moving the policy stance to become restrictive enough, not on rate cuts. Meanwhile, US Treasury yields edged marginally lower after ticking higher post-Fed. EUR/USD trades just ahead of the 1.0700 figure, while GBP/USD stands at 1.2430.

The AUD/USD trimmed losses and hovered around 0.6860 ahead of Australian and Chinese key data. Australia will publish November employment figures on Thursday. Australia is expected to announce adding 19,000 jobs, while the Unemployment Rate is foreseen unchanged at 3.4%.
The USD/CAD pair is down to 1.3545, helped by stronger oil prices. The barrel of WTI currently stands at $77.35. Gold ended the day little changed at around $1,807 a troy ounce.

Early on Thursday, the focus will be on the Bank of England’s and the European Central Bank’s monetary policy decisions.

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