Aggressive Fed hikes rates another 75 bp, surprising no one

 

“Best startups generally come from somebody needing to scratch an itch.” — Michael Arrington

 

 

 HEADLINES

 

• U.S. dollar jumps to new two-decade high as Fed delivers big rate hike
• Gold reverses losses on Fed Chair Powell’s comments
• Oil prices fall after U.S. Fed raises interest rates
• Aggressive Fed hikes rates another 75 bp, surprising no one
• 2-year Treasury yield surges above 4.1% after Fed hike, highest level since 2007
• GBP/USD: Vulnerable to more losses in the short run – Scotiabank
• GBPJPY Near Term: Downside favored

 

 

U.S. dollar jumps to new two-decade high as Fed delivers big rate hike

 

The dollar surged to a fresh two-decade high on Wednesday after the Federal Reserve raised interest rates by another 75 basis points, as expected, and signaled more large increases at its upcoming meetings.

The Fed's new projections showed its policy rate rising to 4.4% by the end of the year, before peaking at 4.6% in 2023 to curb uncomfortably high inflation. Rate cuts are not expected until 2024.

The dollar index hit a fresh 20-year high of 111.63 and was last up 1.1% at 111.42.

The euro, the largest component in the dollar index, dropped to a 20-year low, hitting $0.9810 . Europe's single currency last changed hands at $0.9837, down 1.3%.

 

 

COMMODITIES

 

Gold reverses losses on Fed Chair Powell’s comments

 

Gold reversed losses after Federal Reserve Chair Jerome Powell explained the central bank’s reasoning for hiking interest rates on Wednesday.

Spot gold initially fell after the Fed increased interest rates by 75 basis points for the third time in a row. The central bank also indicated it will continue hiking above the current level.

Spot gold was last up 0.9% at 1,678.09 per ounce and U.S. gold futures rose 0.98% to 1,687,40.

 

 

ENERGY

 

Oil prices fall after U.S. Fed raises interest rates

 

Oil prices fell on Wednesday after the U.S. Federal Reserve delivered another hefty rate hike to quell inflation, but that may also reduce economic activity.

The Fed raised its target interest rate by three-quarters of a percentage point to a range of 3.00-3.25% and signalled more big increases ahead. Risk assets like stocks and oil fell, while the dollar rallied.

Brent futures fell 54 cents, or 0.6%, to $90.08 a barrel by 2:15 p.m. EDT (1815 GMT), while U.S. West Texas Intermediate (WTI) crude fell 71 cents, or 0.9%, to $83.23.

 

 

STOCKS

 

Aggressive Fed hikes rates another 75 bp, surprising no one

 

The Federal Reserve raised its target interest rate by three-quarters of a percentage point to a range of 3.00%-3.25% on Wednesday and signaled more large increases to come in new projections showing its policy rate rising to 4.40% by the end of this year before topping out at 4.60% in 2023 to battle continued strong inflation.

The U.S. central bank's quarterly economic projections, meanwhile, showed the economy slowing to a crawl in 2022, with year-end growth at 0.2%, rising to 1.2% in 2023, well below the economy's potential. The unemployment rate is projected to rise to 3.8% this year and 4.4% in 2023. Inflation is seen slowly returning to the Fed's 2% target in 2025.

STOCKS: The S&P 500 (.SPX) briefly turned lower then was up 10.82 points, or 0.28%, at 3,866.75

 

 

2-year Treasury yield surges above 4.1% after Fed hike, highest level since 2007

 

The yield on the 2-year Treasury note topped 4.1% after the Federal Reserve raised interest rates by another 0.75 percentage point, and surged to its highest level since 2007.

The policy-sensitive 2-year Treasury rose 15 basis points to 4.113%, to a level not seen since October 2007 when it hit a high of 4.138%. Meanwhile, the yield on the benchmark 10-year Treasury rose to a high of 3.64%, its highest level since February 2011.

The significant inversion, with short-term rates higher than long-term rates, points to the risk of a recession, some investors believe.

Yields and prices move in opposite directions, and 1 basis point is equivalent to 0.01%.

 

 

ANALYSIS

 

GBP/USD: Vulnerable to more losses in the short run – Scotiabank 

 

“New cycle lows and a weak – so far – rebound which is struggling to regain the mid-1.13s leave the pound looking vulnerable to more losses in the short run.” 

“We spot resistance at 1.1350/75 and 1.1450/60.”

“Support is 1.1300/10, then the big figures below.”

“Foreign investors have been moving out of Gilts in recent months and may require more attractive yields before returning.”

 

 

CHART

 

GBPJPY Near Term: Downside favored

 

Technical View: Short position below 163.41. Target 162.52. Conversely, break above 163.41, to open 163.79.

Comments: The pair breaks below support.

 

 

Source: Trading Central 

 

 

CALENDAR

 

*Times in GMT

 

 

Source: FX Street Economic Calendar

 

SOURCES

 

https://www.reuters.com/markets/europe/dollar-ascendant-investors-gear-up-fed-2022-09-21/
https://www.cnbc.com/2022/09/21/precious-metals-gold-fed-interest-rates-inflation.html
https://www.reuters.com/business/energy/oil-prices-extend-losses-fears-aggressive-fed-rate-hike-will-curb-demand-2022-09-21/
https://www.reuters.com/markets/us/aggressive-fed-hikes-rates-another-75-bp-surprising-no-one-2022-09-21/
https://www.cnbc.com/2022/09/21/treasury-yields-fall-ahead-of-federal-reserve-interest-rate-decision.html
https://www.fxstreet.com/news/gbp-usd-vulnerable-to-more-losses-in-the-short-run-scotiabank-202209211334