May 30, 2023
USD increased as Powell vowed to control the inflation
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USD increased as Powell vowed to control the inflation

Market Update

While, like every Thursday, we had initial Jobless claims, which fell to a new low at 222K to confirm the strength of the US economy and labor market, FED chair Powell vowed to increase the tightening level of policies in FED to cool down red-hot inflation. It can be another signal for a 75-basis points rate hike in the 20-21 FOM meeting. Jerome Powell expressed a speech at the Cato Institute’s annual monetary conference.

Wall Street raise after an initial adverse reaction!

Powell said: “The longer inflation remains above [the Fed’s 2%] target, the greater the risk that the public does begin to see higher inflation as the norm, and that has the capacity to really raise the cost of getting inflation down. History strongly cautions against prematurely loosening policy.” Earlier this week, Fed vice chair Lael Brainard also emphasized that FED will continue its hawkish policies to control inflation for as long as it takes.

While FED had already increased the interest rates by 225 basis points since March, when they started the rate hike policy, with a strong labor market and a well-improving economy, it is expected to continue the same policy for a bit longer time. According to the CME’s Fed watch tool, more than 80% of traders expect it to increase rates by 75 basis points for the third time this year.

FED is not alone in this way. Earlier this week, RBA and BoC also increased the rates; today, ECB did the same. Along with a 75-bais point rate hike, ECB also said inflation remains too high, which means they will need to raise the rates further over the next several meetings. With this condition, now it is expected to see the ECB rates somewhere around 1.75% by the end of this year.

As was expected, with this news and updates, the US dollar continued its rally once again above the 110 mark, and leading indices, after initial soft gaining, started to lose ground. At the time of writing, DXY at 110.06 increased more than 0.20%. Dow Jones Industrial Average, S&P 500, and Nasdaq composite in the stock markets all were losing about 0.7% on average. For now, this downward trend in the stock markets and the upward trend in the dollar index is expected to continue smoothly and slowly.

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