Market News
Markets will question the prospect of more Fed hikes despite the “hawkish hold”
The Federal Reserve held rates steady but signaled a hawkish stance with two more hikes projected in 2023. Despite this, markets remain skeptical, limiting USD gains. Inflation continues to ease, while US equity markets pause their rally but show resilience.
The Federal Reserve kept rates on hold in June, maintaining the Fed funds rate at 5.00%/5.25%. However, its dot plot projections indicate two more rate hikes in 2023, reflecting a hawkish stance. Despite these signals, markets seem unconvinced, with interest rate futures pricing barely shifting for the peak rate and pushing potential rate cuts into 2024.
Inflation trends show a continued disinflationary path. Both CPI and PPI data indicate easing price pressures, but the Fed remains focused on core PCE inflation, which it views as progressing too slowly. Jerome Powell’s comments signal that July’s meeting is “live,” with upcoming data likely determining whether another rate hike is warranted.
The USD initially rallied on the Fed’s hawkish tone, particularly against the JPY, with USD/JPY breaking resistance and targeting higher levels. However, with inflation easing and doubts over further hikes, the upside for the USD may be limited, presenting opportunities for strength in CAD and AUD against the greenback.
US equity markets showed mixed reactions to the Fed. The e-mini S&P 500 futures posted a neutral response, while NASDAQ 100 futures continued their upward momentum. Despite a pause in the bull run, technical support levels suggest that this is more of a consolidation phase rather than the start of a correction. The focus remains on key levels around 14695/14795 and the 21-day moving average at 14331.
While the Fed maintains a tough stance, inflation data and market skepticism suggest a challenging path ahead for sustained USD strength, leaving room for equities to hold their ground in the ongoing bull market.
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