– Post-FOMC fall-out roils overnight markets
– BoE hikes rates 0.25%, SNB surprises with a 0.50% bump
– US dollar trading with a bid tone
USDCAD Snapshot: open 1.2932-36, overnight range 1.2863-1.2957, close 1.2892, WTI open $115.30, Gold open $1,830.78
The Canadian dollar bopped and weaved in a choppy post-FOMC session. USDCAD rallied to 1.2990, then dropped to 1.2863 in a frenzy between the FOMC statement and Fed Chair Powell’s press conference.
The Fed raised its key rate by 0.75%, which was higher than Mr Powell’s previous forward guidance. However, a very hot inflation print last Friday and the surge in the 10-year Treasury yield to 3.43% forced the Fed to bow to market wishes.
The often talked about, but rarely accurate dot-plot forecast of interest rates in the Summary of Economic Projections predicts Fed funds at 3.125% by year-end. The Fed lowered its 2022 GDP growth forecast to 1.7% from 2.8% in March, raised the unemployment forecast by two ticks to 3.7%, and boosted its inflation guess to 5.2% from 4.3%.
Policymakers still believe inflation will decline in 2023, forecasting a drop to 2.6%, then 2.3% in 2024.
The Fed rate hike was fully priced in by traders, and Wall Street rallied to close with solid gains. Those gains evaporated overnight.
S&P 500 futures are down 2.20% in early NY trading on the heels of a surge in the 10-year Treasury yield, which climbed 3.46% from 3.32% in Asia.
European equity markets are also deep in the red. The German Dax has lost 2.90% so far, leading a close race lower. Gold prices are on the back foot, falling to $1815.00 from $1836.00, and WTI oil is trading at $113.10/b.
The Canadian dollar is under pressure partly because Canadian and US 10-year yield spreads collapsed in favour of the US.
However, those spreads are likely to widen again as the Bank of Canada is expected to hike its overnight rate on July 13.
Yesterday’s emergency ECB meeting proved to be all talk and no action. The policymakers announced they would develop a tool to support stressed bond markets. EURUSD traders acted accordingly, and the single currency is trading at the bottom of its overnight 1.0382-1.0469 range.
The Swiss National Bank surprised markets by raising the key rate by 0.50 bps. USDCHF soared from 0.9773 to 0.9988 but dropped to 0.9808 as the overnight Swiss rate is still negative 0.25% and US treasury yields climbed.
The Bank of England raised interest rates 0.25% which disappointed traders who expected a more robust response, especially following the Fed and SNB actions. GBPUSD dropped to 1.2043 from 1.2188 but recovered to 1.2140 in NY.
Today’s US data includes weekly jobless claims and the Philadelphia Fed Manufacturing Index.