write some investment insight on fx: "Overnight headlines
Fed vote unanimously to raise rates by 25bps to 5.25% - 5.50%
Fed language has been upgraded with economic activity expanding at a “moderate” pace vs. a “modest” pace on the year in June
Fed strongly committed to bringing inflation back down to target 2% objective
Fed leaves the door open to more hikes which will be data dependent
US June New Home Sales-Units 0.697 mln, 0.725 mln forecast, 0.763 mln previous
US June New Home Sales Change MoM -2.5%, 12.2% previous
US 21 July MBA Mortgage Applications -1.8%, 1.1% previous
US June Build Permits Number 1.441 mln, 1.440 mln previous
US June Build Permits Change MM -3.7%, -3.7% previous
Bank of Canada Minutes: Policy makers discuss delaying hike at next meeting
Fed hikes as expected but leaves the door open
This morning’s Federal Open Market Committee (FOMC) came in largely as expected with a hike and left the door open to potential rate hikes in the future. The Federal Reserve (Fed) lifted rates by a quarter point to shift the target range of 5.25% to 5.5%. Jerome Powell the Fed Chair said that the Fed will base future rate hikes on upcoming data and they could keep rates steady in September or they could raise rates again at the meeting. This data dependent path is not something new and the Fed has referenced this multiple times in the past. With the next Fed meeting 8 weeks away, it gives policy makes a good set of data (2 jobs reports and 2 consumer price reports) to base their next rate decision on.

He also mentioned that while there has been a slight softening of inflation to 3% on a year on year basis, there still is a lot that is needed to be done by policy makers and the process of getting inflation down to 2% is a long process. The assement of the economy also got an upgrade with economic activity said to be expanding at a “moderate pace” as compared to June’s statement of “modest” pace. Powell also shared that Fed policy makers no longer have a recession in their projections, however, he did mention multiple times that the labour market numbers will have to come down to before there is any dent in getting inflation to the target.

Short term yields dropped with 2 year treasuries falling to 4.84% with bond yields falling as equities initially rallied but ended the day in losses. USD is generally stable across the board with the Sterling Pound still holding above the 1.2900 with the Euro dollar recovering slightly at 1.1080. Next up we have Jackson Hole Symposium and whether or not Jerome Powell uses this to pass a message through will depend on the data in the coming weeks.

 

 

ECB up next

The European Central Bank (ECB) will be up next this evening and like the Fed the markets have already priced in a 25bps hike for the meeting. Their rhetoric previously was different from the Fed’s as market watchers will look for cues to see if the central bank maintains is hawkish tone or moves towards a more Fed-esque type message that would be one on being data dependent. This comes on the back of some weaker numbers from Purchasing Managers Index (PMI) as well as a slight softening of inflationary data. This has been the basis for the EURUSD’s recent correction as the contractionary numbers do caution about an impending recession on the horizon if the economy deteriorates further."