FED DECISION KEY POINTS:
The Federal Reserve raises interest rates by 25 basis points to 4.75%-5.00%, in line with expectations
The policy statement removes guidance indicating that ongoing increases in the target range will be appropriate
The dot-plot signals the same hiking path for 2023 as the one envisioned three months ago
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FOMC MARKET REACTION:
Updated at 2:42 pm ET

Immediately after the FOMC announcement crossed the wires, the U.S. dollar took a turn to the downside, with the DXY index falling more than 0.8%, undermined by the sharp pullback in Treasury yields, especially those at the front end of the curve. This move was prompted by the Fed’s softer guidance, which was less hawkish than previous iterations in the face of the recent banking sector upheaval. All this suggests that the central bank’s hiking cycle is close to its end, a bearish outcome for the U.S. dollar.

Source: TradingView

Original post at 2:25 pm ET

The Federal Reserve concluded today one of its most anticipated meetings in recent memory and voted by unanimous decision to raise interest rates by a quarter of a percentage point to 4.75%-5.00%, largely in line with consensus estimates. This adjustment brings borrowing costs to their most restrictive level since 2007, a sign that the central bank will not relent in its efforts to restore price stability.

Ahead of today’s announcement, Wall Street’s expectations were in flux amid banking sector turmoil in the aftermath of the collapse of two lending institutions and the bailout of Credit Suisse earlier this month. Although market stress has begun to ease after government authorities swiftly unveiled coordinated measures to shore up the financial system, sentiment was still fragile.

In the policy statement, the FOMC noted that the labor market continues to be robust, and that inflation remains elevated. Regarding recent developments related to regional banks, the Fed stated that the banking system is sound and resilient, but underscored that the situation could result in tighter credit conditions for households and businesses, creating downside risks for economic activity, hiring and inflation.

In terms of forward guidance, language indicating that “ongoing increases in the target range will be appropriate” was removed and replaced by “additional policy firming may be appropriate”. While this points to further tightening, it is less hawkish than previous messages, a sign that the hiking cycle is coming to an end. This is likely to be bearish for the U.S. dollar over the medium term.

SUMMARY OF ECONOMIC PROJECTIONS
There were meaningful changes in the March Summary of Economic Projections (SEP) compared to the material presented in December of 2022. For 2023, the GDP forecast was downgraded to 0.4% from 0.5% previously, while the unemployment rate was marked down to 4.5% from 4.6%, a vote of confidence in the labor market despite growing economic headwinds. Meanwhile, core PCE inflation for 2023 and 2024 was revised higher by one-tenth of a percent to 3.6% and 2.6%, respectively. Key details are highlighted in the below.

image1.png
Source: Federal Reserve

FED DOT PLOT
The Fed’s so-called dot plot, which shows the trajectory for interest rates, signaled the same hiking path for 2023 as the one contemplated three months ago, with the median projection steady at 5.1%, implying about 25 basis points of additional tightening through year’s end. For 2024, rates are seen at 4.3% versus 4.1% in December, indicating a little less easing with respect to the terminal rate on the horizon.

Stay tuned for our market reaction analysis

Written by Diego Colman, Contributing Strategist

US DOLLAR (DXY) PRICE AND CHART ANALYSIS
US inflation turns lower but remains at elevated levels.
Banking contagion fears continue to stalk the market.
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Headline inflation (y/y) in the US fell by 0.4% to 6% in February, in line with analysts’ expectations, while core inflation nudged 0.1% lower to 5.5%, also in line with forecasts. According to the US Bureau of Labor Statistics,

‘The index for shelter was the largest contributor to the monthly all items increase, accounting for over 70 percent of the increase, with the indexes for food, recreation, and household furnishings and operations also contributing. The food index increased 0.4 percent over the month with the food at home index rising 0.3 percent. The energy index decreased 0.6 percent over the month as the natural gas and fuel oil indexes both declined.’

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US Dollar Grips on as SVB Fallout Brings US CPI into View Ahead of the Fed

The recent bout of banking contagion fear, sparked by the Silicon Valley Bank failure, will remain uppermost in the Fed’s thinking when they announce their latest monetary policy decision on March 22nd. While the central bank’s actions in making depositors whole have eased concerns, the fear that other, smaller, banks are sitting on unrealised bond losses will continue, especially if the Fed continues to hike interest rates. Market expectations for further rate hikes have been pared back sharply in the last few days, but if inflation remains high then chair Powell and his colleagues will have to decide whether to continue to push down on inflation by tightening monetary conditions or to wait and see if prior rate hikes start passing through the system and dampen price pressures.

The US dollar slipped 15 pips after the release before recouping these small losses and trading flat. The US dollar is currently battling contrasting forces of banking contagion fears and lower US Treasury yields and remains highly volatile.

From Cawley, Senior Strategist

Dear customers，

To celebrate the Labor Day in Victoria, All branches of Supay in Melbourne will be closed on March 13, 2023 (Monday), and back to work on March 14, 2023 (Tuesday). We apologize for the inconvenience caused, and thank you for your understanding.

SUPAY 10/03/2023

POWELL’S KEY COMMENTS:
The Fed chairman embraces a hawkish stance and indicates that the FOMC terminal rate will likely be higher than initially anticipated
Powell says the central bank will stay the course until the job is done and that the bank is prepared to accelerate the pace of tightening in light of inflation risks
The U.S. dollar extends gains after Powell’s remarks cross the wires, bolstered by the hawkish repricing of the central bank’s monetary policy outlook

Jerome Powell appeared today before the U.S. Senate Committee on Banking, Housing and Urban Affairs to deliver the Federal Reserve’s Semiannual Monetary Policy Report, kicking off his two days of appearances on Capitol Hill.

In prepared remarks, the Fed chief embraced a hawkish position, reiterating that the central bank is committed to restoring price stability and will stay the course until the job is done, a sign that borrowing costs will continue to climb for the foreseeable future in the U.S. economy.

Powell also warned Congress that resilient economic activity poses upside inflation risks and that determined measures will be required to tame them. Further, the central bank chief stated that the FOMC terminal rate is likely to settle higher than initially anticipated and that policymakers are prepared to increase the pace of tightening if needed.

Focusing on the outlook, Powell said that officials will make their decisions meeting by meeting, based on the totality of incoming data. At the same time, he cautioned that there are little signs of disinflation in core services excluding housing, and that a softer labor market may be needed in order to win the fight against inflation.

Immediately after Powell’s remarks crossed the wires, the U.S. dollar extended its advance as the short-end of the Treasury curve moved higher, along with expectations for the FOMC’s peak rate, as shown in the chart below. Fed swaps also repriced to favor a 50 bp hike in March over a 25 bp move, a clear indication more forceful actions may be on the horizon in response to sticky inflationary pressures. Monetary policy dynamics are likely to be bullish for the U.S. dollar in the near term, suggesting that the DXY index could prolong its recovery this month.

UPDATE US DOLLAR (DXY) TECHNICAL ANALYSIS
In terms of technical analysis, the U.S. dollar (DXY) daily chart shows that price has broken above an important trendline resistance in play since October 2022, reinforcing the greenback’s near-term positive bias. With this bullish breakout, the focus shifts to January’s high at 105.63, the next ceiling to keep an eye on. If bulls manage to clear this level, we could see a move towards 106.18, the 38.2% Fib retracement of the September 2022/February 2023 slump. On the flip side, if sellers return and trigger a pullback, initial support appears at 104.90, and 104.00 thereafter.

From Diego Colman, Contributing Strategist

US DOLLAR OUTLOOK: BULLISH
The U.S. dollar, as measured by the DXY index, rallies and closes the week at its best level since early January
The greenback’s gains are driven by surging U.S. Treasury yields following hotter-than-expected PCE results
ISM data will be in focus in the coming days, but the DXY heads into the new week with strong upside momentum.US DOLLAR OUTLOOK: BULLISH
The U.S. dollar, as measured by the DXY index, rallies and closes the week at its best level since early January
The greenback’s gains are driven by surging U.S. Treasury yields following hotter-than-expected PCE results
ISM data will be in focus in the coming days, but the DXY heads into the new week with strong upside momentum.Written by Diego Colman, Contributing Strategist

US Dollar, USD, DXY Index, Fed, TIPS, Yields, ECB – Talking Points
US Dollar resumed strengthening last week on Fed hawkishness
Treasury and real yields appear to be lending USD support for now
Today’s US holiday is ahead of some crucial US data later in the week
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The US Dollar has started the week slightly firmer as the markets contemplate a Federal Reserve turning more hawkish at their Federal Open Market Committee (FOMC) meeting in late March.

The possibility got legs after Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard made hawkish comments last week.

They both indicated that they would consider a 50 bp lift of the Fed funds target rate at the next meeting. While Ms Mester is on the board, she is currently a non-voting member.

This saw Treasury yields move north into the end of last week and although the US bond market is closed today, the increase in real yields appears to be underpinning the US Dollar.

Real yields are the nominal Treasury yield minus the market-priced inflation rate derived from the Treasury Inflation Protected Security (TIPS) over the same period.

If the Fed decides to go with 50 bp moves, this would be a surprise to markets as the swaps and futures markets are both currently pricing in 25 bp at the next two FOMC gatherings.

The European Central Bank has indicated that they will be moving by 50 bp at their next meeting but their cash rate is more than 200 bp below the Fed.

Geopolitical tensions in the APAC region continue with North Korea firing 2 missiles over the Japan Sea on the weekend. This was followed by the US and South Korea performing combined military exercises today and then 3 more missiles were fired by North Korea on Monday.

This comes on the back of simmering US-China relations after the balloon saga of last week. This has contributed toward a broader concern for risk assets although APAC equities were mixed today.

Australian and Japanese stock indices are fairly flat while China and Hong notched modest gains.

A notable underperformer today has been New Zealand’s S&P/NZX 50 Index which is down over 1%. The cost of cyclone Gabrielle and the prospect of the Reserve Bank of New Zealand (RBNZ) hiking by 50 bp to 4.75% on Wednesday appear to be dragging it lower.

Crude oil prices eked out small gains with the WTI futures contract pressing toward US$ 77 bbl while the Brent contract is having a look above US$ 83.50 bbl. Gold is steady, trading near US$ 1,842 at the time of writing.

Looking ahead, it could be a quiet day with the US on holiday and aside from EU consumer confidence, there is little in the way of data.

Later in the week, FOMC meeting minutes will be released on Wednesday and the Fed’s preferred inflation gauge of Core PCE will be out on Thursday as well as some 4Q US GDP figures.

— Written by Daniel McCarthy, Strategist for DailyFX.com

The Australian Dollar finished lower at the end of last week with broad-based US Dollar strength sinking AUD/USD.

The unemployment rate nudged higher to 3.7% in January against the 3.5% anticipated and prior. 11.5k Australian jobs were lost in the month, which was below forecasts of 20k being added.

This might be helpful for the Reserve Bank of Australia which is battling to get inflation. RBA Governor Philip Lowe appeared before a Senate estimates committee and then he delivered his semi-annual testimony to the House of Representatives Economics committee.

There were no real surprises across the two days with some testy posturing by some politicians. His answers did have an economics 101 angle to them, generally explaining the reasons why inflation is bad for the Australian economy and society in general.

The futures market has priced in two rate hikes of 25 basis points at the central bank’s March and April meetings.

Australia and China are expected to hold virtual trade talks this week. It has raised hopes of a potential visit to China by Australian Prime Minister Anthony Albanese later in the year.

While an easing of tensions in the relationship would be welcomed by some Australian exporters, the trade surplus is already at a record level. Many businesses that were shunned from the Chinese economy have found other markets.

The US Dollar has resumed strengthening with solid economic data pushing Treasury yields higher, underpinning the currency. Most notably, CPI and PPI both came in higher than anticipated last week.

Several speakers from the Federal Reserve have maintained the hawkish mantra with some now pondering a return to 50 bp lifts at their March meeting rather than the 25 bp that the market has pencilled in.

A return to outsized hikes by the Fed might lead to higher yields which might see the greenback gain traction.

— Written by Daniel McCarthy, Strategist for DailyFX.com

ASX: The local share market is expected to rise this morning despite a mediocre session on the US market overnight.

Jobs: The Aussie jobs market is expected to have remained very tight when the Australian Bureau of Statistics releases unemployment data today.

The unemployment rate hovered around 50-year lows for much of last year, landing at 3.5 per cent in December.

Budget blowout: The National Disability Insurance Scheme is set to cost half a billion dollars more this financial year compared to estimates produced in the October budget.

At the time, the budget said the scheme would cost $35.5 billion for the financial year but is now projected to cost $36 billion

Car ban: Aussie drivers may have little choice other than to buy an electric vehicle within 12 years, after Europe effectively banned the sale of petrol and diesel cars by 2035.

The European Union formally approved plans to cut car emissions by 100 per cent in 2035, following similar restrictions in countries including China, Japan, Canada and Hong Kong.

Housing crisis: A battle looms for the federal government after clearing the first hurdle to deliver a key election promise on housing affordability.

The government’s signature $10 billion housing fund passed the lower house but faces a battle in the senate, with the Greens demanding further measures to ease the property squeeze.

$60 million: A look inside the most expensive property sold in Australia in 2021Scroll back up to restore default view.
Plastic nation: ​​Clean Up Australia has released its National Rubbish Report for 2022, which is a snapshot of the types of waste contaminating ecosystems nationwide.

About two thirds of the rubbish volunteers plucked from the environment last year was plastic, a jump of almost 20 per cent in one year, the report revealed.

Garbage strike: As thousands of tourists arrive in Sydney for World Pride, a business group wants a rubbish-collector pay dispute escalated to the NSW government.

Protected industrial action and staff shortages have left tens of thousands of bins uncollected around the City of Sydney as the strikes stretch into their second week.

Flight cancelled: Thousands of passengers worldwide were stranded after an IT fault at Germany’s flagship carrier, Lufthansa, caused flight delays and disruption at airports.

The company said the problem was caused by damage to several of Deutsche Telekom’s glass-fibre cables during construction work in Frankfurt.

From Eliza Bavin·Personal Finance Editor

Global market sentiment generally deteriorated this past week. On Wall Street, the Dow Jones and Nasdaq 100 weakened 0.17% and 2.41%, respectively. Things were not much better across the Atlantic, where the FTSE 100 and DAX 40 fell 0.24% and 1.09%, respectively. Meanwhile, in the Asia-Pacific region, the Hang Seng Index and ASX 200 declined by 2.17% and 1.65%, respectively.

Broadly speaking, markets have been aligning themselves more closely with what the Federal Reserve is anticipating for interest rates this year. That is, traders have almost priced out rate cuts by the end of this year following January’s blowout non-farm payrolls report. We also had relatively hawkish Fedspeak this past week.

Still, it was a mixed bag for the US Dollar. It outperformed the Euro, Japanese Yen and Canadian Dollar. Meanwhile, the British Pound and Australian Dollar fared better. Sterling performed solidly after data earlier this past week showed that the UK economy just narrowly avoided a recession in 2022.

In the week ahead, all eyes turn to the next US inflation report. CPI is seen clocking in at 6.2%, which would represent a further slowdown from 6.5%. With markets incredibly sensitive to US monetary policy, a slight miss/beat would be a key ingredient for volatility. UK CPI data is also due. Keep a close eye on Australian employment data as well for AUD/USD. What else is in store for markets in the week ahead?

— Article Body Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

— Individual Articles Composed by DailyFX Team Members

Earnings, Apple, Amazon, Google and Nasdaq 100 Talking Points:
The Market Perspective: Bearish Nasdaq 100 Relative to Bullish Dow Index
Amazon and Google both offered mixed earnings results with both companies short of analysts’ EPS forecasts, though revenues were not a detriment
Apple, sporting the largest market cap in the world above $2 trillion, missed on both the top and bottom line; adding pressure to Friday’s Nasdaq outlook.
The bulk of the US tech-sectors’ earnings were released after the New York close Thursday. Following the disappointment of Netflix earnings on January 19th and the mixed performance from Meta the previous day, we would navigate into the stalwarts of the so-called FAANG group. Apple’s market cap is $2.26 trillion and represents 11.8 percent of the Nasdaq 100’s weighting. Amazon is $1.04 trillion and is 6.7 percent. Google (Alphabet) is $602 billion and 3.9 percent. Naturally, given the weight of these big players, their corporate performance carries significant weight in the consistency of the bull trend that we have seen take traction these past weeks. Now, with their mixed performance in earnings, questions over the fundamental currents carrying this enthusiasm may gain traction.