You are here: Home > articles > Forex > Daily Market Comment – Dollar awaits Powell, UK CPI data adds extra pressure on BoE
Daily Market Comment – Dollar awaits Powell, UK CPI data adds extra pressure on BoE
June 21, 2023 8:29 amVideo
Latest News
- Congrats on Winning in the Ramadan Challenge Promo April 10, 2024
- Forecast for EUR/USD on April 10, 2024 April 10, 2024
- Forecast for GBP/USD on April 10, 2024 April 10, 2024
- Forecast for AUD/USD on April 10, 2024 April 10, 2024
- Financial future on the horizon: US stocks rise ahead of consumer price news April 10, 2024
- Trading Signals for EUR/USD for April 10-12, 2024: sell below 1.0864 (4/8 Murray – symmetrical triangle) April 10, 2024
- Trading Signals for GOLD (XAU/USD) for April 10-12, 2024: sell below $2,364 (6/8 Murray – head and shoulders) April 10, 2024
- Technical Analysis – NZDUSD bulls show up before RBNZ rate announcement April 9, 2024
- Trading Signals for GOLD (XAU/USD) for April 9-11, 2024: sell below $2,364 (6/8 Murray – overbought) April 9, 2024
- Will Friday’s data add to hopes of UK exit from recession? – Preview April 9, 2024
- ECB meeting looms: what to expect April 9, 2024
- EUR/USD: Waiting for price turbulence April 9, 2024
- Technical Analysis – EURUSD remains above SMAs with weak momentum April 9, 2024
- BoC to put June rate-cut on the map-tentatively – Preview April 9, 2024
- Forex forecast 04/09/2024: EUR/USD, GBP/USD, Oil and Bitcoin from Sebastian Seliga April 9, 2024
- Video market update for April 09, 2024 April 9, 2024
- Technical Analysis – EURJPY rises towards 16-year high April 9, 2024
- Market Comment – Gold shines bright, yen knocks on intervention door April 9, 2024
- Technical Analysis – AUDUSD steady after several sessions of gains April 9, 2024
- Technical Analysis – GBPUSD capped by 50-day SMA April 9, 2024
Powell gets a second chance to convince the market
The US dollar gained ground against most of the other major currencies on Tuesday, losing only against the Japanese yen. Although the moves were somewhat reversed during the Asian session today, yesterday’s action suggests a risk-off trading activity, just a day before Fed Chair Powell appears before the US House of Representatives’ Financial Affairs Committee for his semiannual testimony on monetary policy.
What encouraged traders to buy some dollars may have been the surge in US housing starts and the rebound in building permits, which may have prompted some participants to increase their Fed hike bets. Currently, they are almost certain that a 25bps may be on the cards by November, but they remain unconvinced on whether another one could materialize before the end credits of this tightening campaign roll.
Today and tomorrow, Chair Powell will have another opportunity to convince investors about the Fed’s intentions, but with several data sets pointing to easing price pressures and softening wage growth, it may be hard for the Fed Chief to find convincing arguments. After all, the full effect of the prior rate increases is not fully felt by the economy yet.
The surge in housing starts and the fact that 1-year inflation expectations remain well above the Fed’s target of 2%, despite sliding notably, could be among the few relatively reasonable arguments. So, if Powell stresses the need for keeping rates higher for longer because there is still a long way to go before the job is done, the dollar could gain a bit more.
That said, calling for a bullish reversal still seems unwise as incoming data pointing to further cooling of price pressures could translate into further declines in inflation expectations and perhaps allow market participants to maintain their rate-cut bets for early next year, despite Powell saying at last week’s press conference that any rate cuts are “a couple of years out.”
UK data adds to the case of a double BoE hike
On the other side of the spectrum is the BoE, which following today’s higher-than-expected CPI numbers for May is under pressure to turn more aggressive. With the core CPI rate rising to 7.1% year-on-year, the probability of a 50bps hike on Thursday now stands at 55%, while ahead of the data, it was hovering at around 30%. As for the foreseeable future, investors are penciling in 160bps worth of additional rate increases, up from 140bps yesterday.
With such pricing, the stakes are now high and anything less than a 50bps hike accompanied with a commitment to deliver more could push the pound off the cliff. The pound could gain and extend its uptrend only if Bailey and co rise to the occasion and meet investors’ expectations, or better say demands. However, the risks seem asymmetrical. Any potential gains due to a hawkish outcome are unlikely to be as large as any potential tumble in the case of disappointment.
Wall Street pulls back ahead of Powell’s testimony
All three of Wall Street’s main indices traded in the red yesterday, with investors perhaps locking some profits after a modest rate cut by China did little to boost their sentiment, but also due to reducing their risk exposure ahead of Fed Chair Powell’s testimony.
Equities could extend their retreat should Powell convince the market that a couple of more hikes are looming and that rate cuts are unlikely to begin as early as it is currently priced in, but similarly to the US dollar, it is too early to argue about a reversal. With Nasdaq around 47% up from its October lows, a decent setback may be a more-than-normal counterwave within the broader uptrend, which could very well resume if market participants maintain bets about a series of Fed rate cuts next year.
Related Posts: