Markets breath a sigh of relief

Overnight Headlines

*USD steady after falling for a second day, DXY now below 92

*US equities were positive, Nasdaq made fresh record highs

USD dropped against most of its major peers as Fed Chair Powell reassured that inflation would eventually come down. Commodity linked FX led the recovery with NZD higher by 0.5% and AUD by 0.3%. JPY is now the worst performing major on the week with USD/JPY touching three-month highs yesterday at 110.86.

US equities gained for a second straight day as Powell stuck to his dovish rhetoric after last week’s dot plot implied faster rate rises. The Nasdaq led the way with gainers in tech and consumer discretionary pushing the index to a record 14,253 (+0.8%) while the broader S&P500 was up 0.5% with defensive utilities the only sector lower. Asian markets are modestly higher while US and European futures are in the green.

Market Thoughts – Dollar holding up so far…

So, comments from Jay Powell and other Fed officials again showed that the debate on QE and tapering is on the cards, but also ongoing. But importantly, the FOMC is nowhere near changing policy on rates with hikes not on the horizon and it still expects inflation to be transitory. Some speakers highlighted the need for more signs of a recovery on the jobs front, which we have been emphasising for some time.

For all the dot plot drama last week, the dip in stocks and inflation expectations too has been “transitory” as markets row back the largely position-driven turbulence post the FOMC meeting. The dollar is holding onto most of its gains so far in quiet trade, with attention turning to today’s PMIs and tomorrow’s Bank of England meeting.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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