What you should know on Tuesday, March 22:
The dollar started the US session on the wrong foot, but strengthened following comments from US Federal Reserve Chairman Jerome Powell. Speaking about the economic outlook at the National Association for Business Economics’ Annual Economic Policy Conference, Powell said if they need to raise the fed funds rate by more than 25 bps in a meeting or meetings, they will, adding that at times With circumstances changing rapidly, the Fed’s predictions could soon be outdated.
In addition, he noted that the central bank is focused on restoring price stability while maintaining a healthy labor market. However, he added that “inflation is too high” and a balance sheet reduction could come as early as the May meeting, but no decision has been made.
Fed funds futures imply traders see a 60.7% chance the Fed will raise rates 50 basis points in May, up from 52% before Powell’s comments.
Wall Street fell while government bond yields soared. The 10-year Treasury bond yield peaked at 2.30%, while the 2-year bond yield hit 2.12%. Among US indices, the S&P posted a slight drop, while the DJIA was the worst performer, down more than 300 points.
In addition, other Fed officials made aggressive comments. Richmond Fed President Thomas Barkin said the US economy no longer needs aggressive support from the Fed and that supply chains, the virus and now war continue to weigh on inflation. On the other hand, Raphael Bostic said that the increase in uncertainty has reduced confidence and it is now appropriate to move to a very aggressive rate path. He predicted six rate hikes this year and two more in 2023.
The EUR/USD pair is hovering around 1.1010, while the GBP/USD pair is trading around 1.3150. AUD/USD struggles around 0.7400 while USD/CAD trades near a fresh low of 1.2564, helped by rising gold and oil respectively.
Meanwhile, the war in Eastern Europe is keeping Western leaders on their toes. Concerns revolve around European dependence on Russian energy hurting economic growth in the Union, with massive sanctions in between. Government bond yields are rising as speculative interest fears inflation will rise further due to rising oil and gas prices. The German government said it stands by its position that the country cannot function without Russian oil imports.
At the same time, Russia’s Deputy Prime Minister Novak said that the price of crude could rise to $300 a barrel if Russian oil is avoided, but that is unlikely. Commodities soared, with WTI now trading around $110.00 per barrel.
Source: Fx Street
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