Market Analysis

The dollar reaches new maximums following Powell’s position on US economy

 

FOREX

The US dollar traded at fresh 2022 maximums and very close to levels not seen since mid-2020, on Thursday morning. The greenback is finding support as investors digest Wednesday’s declarations by the Federal Reserve’s chairman, which hinted at a further hawkish tilt by the American central bank. The markets are now assured of a rate hike in March, which could be of 50 basis points, with the possibility of up to three more increases more before the end of the year, after Jerome Powell clearly stated that in the Fed’s view the economy no longer requires substantial levels of monetary policy support.  As the need to control inflation becomes the Fed’s main mid-term objective, there will be scope for further US dollar gains in relation to other major currencies, with the question now being how substantial are those gains likely to be.

Ricardo Evangelista – Senior Analyst, ActivTrades

 

Source: ActivTrader

 

GOLD

Gold prices fell during early Thursday trading, carrying the momentum gathered the previous night and erasing all the gains accumulated so far this year, as the US Federal Reserve assumed a more pronounced tilt towards hawkishness. Speaking at the end of a two-day gathering, the Fed’s chairman gave clear indications of a commitment to tighten monetary policies in order to bring inflation under control, which led the markets to price in 200 basis points worth of rate hikes in 2022. Such a scenario is obviously supportive for the dollar and therefore penalizes gold, due to the inverted correlation between the two assets.

Ricardo Evangelista – Senior Analyst, ActivTrades

 

Source: ActivTrader

 

EUROPEAN SHARES 
European equities extended the sell-off registered in Asia overnight, as investors digested the latest decision from the Federal Reserve. Investor sentiment towards risky assets is being weighed down on a global scale after the Fed said it would not be proceeding with a widely anticipated early Q1 rate hike during yesterday’s FOMC meeting. Although Fed chairman Jerome Powell laid down a more aggressive-than-expected groundwork in monetary tightening for 2022, markets were desperate to see the Fed finally taking real action to tackle rising prices, and were clearly disappointed. The Dollar Index climbed, alongside high yields, but most benchmarks still haven’t broken-out of any major support level so far, despite the bearish moves registered since the Fed’s announcement. Uncertainty reigns more than ever now and investors will have to switch focus back to the patchy earning season as well as the unsettled geopolitical tensions in Eastern Europe, which is likely going to lead to volatile trading actions, but without clear direction until any significant breakthrough occurs.

Pierre Veyret– Technical analyst, ActivTrades

Source: ActivTrader

 

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