US Dollar Moves To Top Spot On CSI, Fed Powell’s Comments

The US dollar and yields have shot higher, extending the post-Fed statement gains during Fed Powell’s hawkish pivot. Bulls have got behind a faster pace of tightening than what had been priced in.

The Federal Reserve did what was expected from them in the main and there had been low volatility in the currency space as a consequence, until Powell’s pivot.

As a consequence of a hawkish turn by the Fed’s chairman, Jerome Powell, during the presser, the US dollar has picked up a bid and moves to the first position on the Currency Strength Indicators.

Markets were expecting to be “prepared for liftoff” from the meeting which both the statement and the Fed’s chair, Jerome Powell, has done. However, guidance on the likely pace of tightening, via QT (quantitative tightening), as well as the funds rate for the year/years ahead, would have been greater catalysts for markets. This did not come. Instead, there were no definitive signals.

However, Powell has stated in the presser that they could move faster and sooner than they did the last time which has helped the US dollar to extend on pre presser gains:

US Treasury yields across the curve shot higher on Wednesday after the Federal Reserve chairman added colour to the statement that said US interest rates would rise soon, adding that it will end its asset purchase program in early March.

The Fed, however, did not set a specific date for raising interest rates. With that being said, federal funds futures have fully priced in a quarter-point tightening for the Fed’s March meeting, and another three hikes for 2022.

However, Fed’s chairman Powell was uber hawkish in his comments around raising rates at every meeting. “Quite a bit of room to raise rates without hurting jobs”, he added.

As a consequence, the benchmark US 10-year yield rose to 1.855%. The US 30-year yields were moved to 2.172% and on the front end of the curve, US 2-year yields shot up to 1.095%.