Market Drivers – US Session 22/02/2023

Mohamed Abdelhamid 23 February, 2023 2:43 am Forex Market, Market Update

The US Dollar benefited from the hawkish FOMC Minutes, accelerating its move by the end of the US trading session. The document showed that a few participants favored a 50 basis point (bps) rate hike, while some believed there was an elevated risk of a recession in 2023.

Key Developments

All FOMC meeting participants agreed more rate hikes are needed to achieve the inflation target while also favor further Fed balance sheet reductions. Finally, participants stated that the continued tight job market would continue to put upward pressure on inflation.

Mid-US session, St. Louis Federal Reserve President James Bullard said more aggressive interest rate hikes now would give the FOMC a better chance to tame inflation, adding he believes there are good chances they could beat inflation this year without creating a recession.

Stock markets suffered from geopolitical tensions throughout the day, dipping further in the red with the FOMC statement. China’s top diplomat, Wang Yi, said on Wednesday that his nation is ready to deepen strategic cooperation with Moscow adding their relationship will not succumb to pressure from other countries. Russian President Vladimir Putin, on the other hand, highlighted the relevance of cooperation with China, adding he is looking forward to Chinese President Xi Jinping visiting Moscow.

The EUR/USD pair flirts with the 1.0600 level by the end of the American session. Earlier in the day, In Europe, Deutsche Bank lifted its forecast on the European Central Bank (ECB) terminal rate to 3.75% from 3.25% previously. ECB Governing Council member Francois Villeroy de Galhau, however, noted that the central bank is not obliged to raise borrowing costs at every meeting, as the deposit rate is already at restrictive levels, suggesting financial markets may have overshot when betting on the ECB rates’ peak.

GBP/USD trades at around 1.2050. AUD/USD defies the 0.6800 mark, while USD/CAD hovers around 1.3550. Finally, USD/JPY remains stable, just below the 135.00 level.

Spot gold collapsed ahead of FOMC Meeting Minutes and trades around $1,826 a troy ounce. Crude oil prices also edged sharply lower, with WTI now changing hands at $73.90 a barrel.

Oil extended its longest run of losses this year after the Federal Reserve’s minutes showed officials back further rate hikes, adding to concerns that a US economic slowdown will reduce demand.

The minutes indicated that Federal Reserve officials were more concerned about the risk of inflation staying high than the economy entering a recession. West Texas Intermediate fell below $74 a barrel; its sixth straight decline, shaking off increasing evidence of a robust recovery in Chinese demand following the end of Covid Zero rules. Brent crude is trading at 80.28 per barrel and WTI is trading at $73.95 per barrel at the time of writing.

Also Read:
How Have Assets Immediately Reacted To FOMC Minutes?