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Forexlive Americas FX news wrap: Fed hikes by 50bps and hikes terminal rate by 50 bps too

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Forexlive Americas FX news wrap: Fed hikes by 50bps and hikes terminal rate by 50 bps too

<ul><li><a href="https://www.forexlive.com/news/the-market-calls-the-feds-bluff-20221214/">The market calls the Fed's bluff</a></li><li><a href="https://www.forexlive.com/news/us-stocks-erase-declines-trade-higher-on-the-day-as-powell-testimony-continues-20221214/">US stocks erase declines. Trade higher on the day as Powell testimony continues</a></li><li><a href="https://www.forexlive.com/centralbank/powell-qa-strong-view-of-fomc-is-need-to-stay-with-rates-high-until-inflation-falls-20221214/">Powell Q&A: Strong view of FOMC is need to stay with rates high until inflation falls</a></li><li><a href="https://www.forexlive.com/technical-analysis/a-look-at-the-technicals-post-the-fomc-rate-decision-20221214/">A look at the technicals post the FOMC rate decision</a></li><li><a href="https://www.forexlive.com/centralbank/powell-opening-statement-we-have-more-work-to-do-20221214/">Powell opening statement: We have more work to do</a></li><li><a href="https://www.forexlive.com/centralbank/us-dollar-jumps-on-new-fed-forecasts-as-powell-awaited-20221214/">US dollar jumps on new Fed forecasts as Powell awaited</a></li><li><a href="https://www.forexlive.com/centralbank/a-comparison-of-november-to-december-fomc-statements-20221214/">A comparison of November to December FOMC Statements</a></li><li><a href="https://www.forexlive.com/centralbank/fomc-dot-plot-and-central-tendencies-from-dec-2022-meeting-eoy-2023-48-20221214/">FOMC dot plot and central tendencies from Dec 2022 meeting. EOY 2023 4.8%</a></li><li><a href="https://www.forexlive.com/centralbank/full-fomc-statement-from-the-december-2022-fed-meeting-20221214/">Full FOMC statement from the December 2022 Fed meeting</a></li><li><a href="https://www.forexlive.com/centralbank/federal-reserve-hikes-50-basis-points-as-expected-20221214/">Federal Reserve hikes 50 basis points, as expected</a></li><li><a href="https://www.forexlive.com/news/european-equity-close-modest-declines-ahead-of-the-central-bank-deluge-20221214/">European equity close: Modest declines ahead of the central bank deluge</a></li><li><a href="https://www.forexlive.com/news/consumre-softness-airlines-arent-seeing-the-demand-they-expected-20221214/">Consumer softness? Airlines aren't seeing the demand they expected</a></li><li><a href="https://www.forexlive.com/news/-wont-put-a-price-floor-on-its-crude-report-20221214/"> won't put a price floor on its crude - report</a></li><li><a href="https://www.forexlive.com/news/us-eia-weekly-crude-oil-inventories-10231k-vs-3595k-expected-20221214/">US EIA weekly crude oil inventories +10231K vs -3595K expected</a></li><li><a href="https://www.forexlive.com/Cryptocurrency/three-things-behind-todays-bitcoin-rally-20221214/">Three things behind today's bitcoin rally</a></li><li><a href="https://www.forexlive.com/centralbank/timiraos-will-powell-be-more-concerned-about-inflation-or-growth-20221214/">Timiraos: Will Powell be more concerned about inflation or growth?</a></li><li><a href="https://www.forexlive.com/centralbank/newsquawk-preview-fomc-expected-to-hike-50bps-with-all-eyes-on-the-peak-forecast-20221214/">Newsquawk preview: FOMC expected to hike 50bps with all eyes on the peak forecast</a></li><li><a href="https://www.forexlive.com/news/us-november-import-price-index-06-vs-05-expected-20221214/">US November import price index -0.6% vs -0.5% expected</a></li><li><a href="https://www.forexlive.com/news/october-canada-manufacturing-sales-28-vs-20-expected-20221214/">October Canada manufacturing sales +2.8% vs +2.0% expected</a></li><li><a href="https://www.forexlive.com/technical-analysis/the-jpy-is-the-strongest-and-the-nzd-is-the-weakest-as-the-na-session-begins-20221214/">The JPY is the strongest and the NZD is the weakest as the NA session begins</a></li><li><a href="https://www.forexlive.com/news/forexlive-european-fx-news-wrap-uk-inflation-eases-markets-await-the-fed-20221214/">ForexLive European FX news wrap: UK inflation eases, markets await the Fed</a></li><li><a href="https://www.forexlive.com/news/us-mba-mortgage-applications-we-9-december-32-vs-19-prior-20221214/">US MBA mortgage applications w.e. 9 December +3.2% vs -1.9% prior</a></li></ul><p>The Federal Reserve hiked rates by the expected 50 basis points to 4.50%, but surprised the market by hiking the terminal rate to 5.1% from 4.6% at their last dot plot in September. The market - coming off of the milder CPI yesterday - had marked the terminal rate down to about 4.83% from 4.99% before the CPI, but the Fed went its own more hawkish way for the 2nd consecutive dot plot, and surprised the market with the move higher to 5.1%. They also raised inflation forecast for the end of 2023 to 3.1% from 2.8% and the core PCE to 3.5% from 3.1%. They dont see inflation moving toward the 2% target until 2025.  </p><p>That led to a reactionary move to the downside in stocks, to the upside in US yields and to the upside  in the USD. </p><p>At session lows, the major indices saw:</p><ul><li>Dow down -404 points</li><li>S&P down -74.44 points</li><li>Nasdaq down -191.57 points</li></ul><p>In the US debt market, the</p><ul><li>2 year yield was up 9.1 basis points</li><li>5 year yield was up 6.2 basis points</li><li>10 year yield up 5.6 basis points</li><li>30 year yield up 4.6 basis points</li></ul><p>In the forex,</p><ul><li>EURUSD moved from 1.0675 to 1.0618</li><li>GBPUSD moved from 1.2430 to 1.2343</li><li>USDJPY move up from 134.81 to  135.98</li><li>AUDUSD moved from 0.6868 to 0.6810</li><li>NZDUSD moved from 0.6456 to 0.6398</li></ul><p>However by the  end of the day, the markets has reversed the earlier moves. In the US stocks, the closing levels were still lower but off the lows for the day:</p><ul><li>Dow fell -142.29 points or -0.42%</li><li>S&P fell -24.321 points or -0.60%</li><li>Nasdaq fell -85.92 points or -0.76%</li></ul><p>US yields were off high levels:</p><ul><li>2 year is down -1.3 bps at 4.215%</li><li>5 year is down -4 bps at 3.612%</li><li>10 year is down -3.9 bps at 3.473%</li><li>30 year is unchanged at 3.526%</li></ul><p>The USD moved back down and the snapshot levels near the close showed. </p><ul><li>EURUSD moved from 1.0618 to 1.0681</li><li>GBPUSD moved from 1.2343 to 1.2425</li><li>USDJPY moved from 135.98 down to 135.35</li><li>AUDUSD moved from 0.6810 to 0.6862</li><li>NZDUSD moved from 0.6398 to 0.6449</li></ul><p>Powell initial comments were tilted to the hawkish side:</p><ul class="text-align-start vertical-align-baseline"><li>We still have "some ways to go" on rates</li><li>We will stay the course until the job is done</li><li>Historical precedence argues against loosening prematurely</li><li>The inflation data in October and November show a welcome reduction. But it will take substantially more evidence to give confidence that inflation is on a sustained downward path.</li></ul><p>And although he kept more of a hawkish cap on through the press conference, pointing out correctly that there are fewer workers vs pre-pandemic due to deaths from Covid and the aging of the baby boomers, and even at 4.6% unemployment at the end of 2023 is still not a high rate,  the market did not really believe him that rates would go up and up and up and up. </p><p>As Adam pointed out, at this point in 2021, the Fed told the market, there were 75 basis points of tightening in 2022. Now after moving rates from a high range target of 0.25% to 4.5% currently - or 425 basis points - the Fed is now saying they still have 75 more basis points  to reach the pause point in their run higher. </p><p>The chair may have also been hedging himself - and the Fed - since the next policy meeting is not until Feb 1. The meeting after that is March 22. So between now and then there are 3 more jobs reports, and 3 more CPI reports, and numerous other releases and unknown events that could either upset the inflation apple cart, or bring the view of inflation more into focus.  </p><p>If the last 5 months of CPI show an average of 0.2%, what will the 8 months show by the March 22 meeting? Will growth slow? Will unemployment statistics start to reflect the anecdotal stories of layoffs? Will services start to figure out how to do with less workers?  </p><p>The Fed chair said at one point today its impossible to predict the terminal rate.  That pretty much is an invitation for the market to do whatever the "flavor of the day" (i.e. bullish or bearish) says it should do.</p><p>Today, it did a little of bullish, and a little bearish in the major markets</p>

                This article was written by Greg Michalowski at www.forexlive.com.

Source: Forexlive Americas FX news wrap: Fed hikes by 50bps and hikes terminal rate by 50 bps too

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