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On January 29th, Chris Grisanti, Chief Market Strategist at MAI Capital Management in New York, stated that the Federal Reserves statement and press conference today were noticeably hawkish. The description of economic activity was upgraded from moderate to solid, while the wording regarding downside risks to employment was removed. At the press conference, Powell stated that after a period of weakness last year, the employment situation has stabilized. Inflation, while trending towards stability, remains slightly high. Overall, the Feds focus has shifted from unemployment to inflation. I dont believe there will be a rate cut in the short term. Furthermore, given the strong market performance and continued economic strength, I dont think there will be a rate cut in 2026, a stance that is more hawkish than current market expectations.FOMC Statement: 1. Interest Rate Decision: The benchmark interest rate was kept unchanged at 3.50%-3.75%, pausing the three-phase rate cuts since September of last year. 2. Voting Divergence: The interest rate decision was passed by a 10-2 vote, with Governors Milan and Waller supporting a 25 basis point rate cut. 3. Interest Rate Outlook: The statement did not signal the timing of the next rate cut. It reiterated that interest rates are assessed based on data, the economic outlook, and risks. 4. Economic Outlook: The assessment of economic activity was revised upward, stating that it is expanding at a "solid" pace; uncertainty about the economic outlook remains high. 5. Labor Market: The statement removed the statement that downside risks to employment have increased; the labor market has shown some signs of stabilization. 6. Inflation: Inflation remains slightly high. Powells Press Conference: 1. Interest Rate Outlook: Interest rates are at the upper end of the neutral range; there is no predetermined policy path, and the data will speak for itself; if tariff inflation peaks and then declines, it will indicate that policy easing is possible; raising interest rates is not anyones base case. Non-voting members also widely supported the interest rate decision. 2. Economic Outlook: The U.S. economy is fundamentally sound; the outlook for economic activity has improved significantly, and the economy is generally stronger than predicted in December. 3. Employment Outlook: The labor market may be stabilizing after a period of softening; risks to both inflation and employment have diminished. 4. Inflation Outlook: Inflation remains slightly above target; core PCE inflation is likely to rise by 3% in December; tariff inflation is expected to peak in the middle of the year. 5. Political Stance: Remaining tight-lipped on sensitive issues; no plans have been decided after the Fed Chairs term ends; the next Chair is advised to stay away from politics. 6. Other Aspects: The housing market remains weak; no data suggests investors are hedging against dollar risks; little macroeconomic information has been gleaned from the rise in gold prices. 7. Latest Forecasts: Overall expectations for rate cuts have been slightly dampened, with pricing in a 46 basis point rate cut for the year and a 60% probability of a June rate cut. 8. Market reaction: Between the release of the statement and Powells speech, spot gold and silver prices initially fell and then rose, while the US dollar did the opposite. Gold hit a new all-time high, with a fluctuation of over $60. US Treasury yields and US stocks fluctuated slightly. On January 29th, Federal Reserve Chairman Jerome Powell responded to questions about what he would tell his successor. He stated that he would tell the next Fed chairman not to get involved in politics. Powell said at a press conference, "Dont get involved in elected politics. Dont get involved in elected politics." He added, "Our window to democratic accountability is Congress. Going to Congress and engaging with the people is not a passive burden, but an active and regular obligation. If you want democratic legitimacy, you have to earn it through interaction with our elected oversight bodies.""New Bond King" Gundlach: Does not believe there will be further interest rate cuts during Fed Chairman Powells tenure.Note: Federal Reserve Chairman Powells press conference has ended.

Despite the fact that Eurozone interest rates are anticipated to peak sooner, the EUR/GBP looks to have breached over 0.8630

Daniel Rogers

Dec 07, 2022 15:12

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The EUR/GBP pair has had a stronger recovery from 0.8580 during the Asian session, approaching the pivotal 0.8630 level. Despite the European Central Bank (ECB) being close to reaching an interest rate high, there has been strong demand for Euro bulls. Thus, the monetary policy meeting scheduled for next week will be of utmost significance.

 

The cross is attempting to break strongly above the significant barrier of 0.8630 for the fourth time this week. The hawkish remarks made by ECB policymakers are holding back the euro bulls.

 

"There will be another rate hike," said Constantinos Herodotou, governor of the Central Bank of Cyprus, "but we are very near to neutral." The European Central Bank's chief economist, Phillip Lane, is unsure as to whether the inflation peak has already occurred or will take place in 2019. He stated that although "much has already been done," he does not rule out more rate increases.

 

Investors are currently looking forward to Christine Lagarde's speech, which will be revealed on Thursday. The ECB President is likely to lower her inflation projection in her future statement in light of the poor retail sales numbers.

 

In contrast to expectations for a 1.7% loss, this week's Eurozone retail sales numbers showed a 1.8% decline. Aside from that, annual economic data contraction came in at 2.7% as opposed to the 2.6% consensus expectation. A decline in household demand demonstrates the effectiveness of the European Central Bank's (ECB) policy tightening initiatives. To reach their sales targets, firms could feel pressured to lower the prices of their products and services.

 

The United Kingdom's deteriorating food crisis, brought on by growing costs and a labor shortfall, has had an impact on the Pound Sterling. According to Minette Batters, president of the National Farmers Union, "the government and the entire supply chain must act swiftly." The Financial Times stated that "tomorrow might be too late." The economy already faces rising food inflation, and the issue with the supply of food will make matters worse.


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