Let’s look at what has transpired since last week and what’s pumped the brakes on the USD dollar bulls.
Since the Fed announcement a week ago, the US Dollar index (DXY) is down over 1% this week, the stock market is showing a recovery, and gold has risen over 0.20%. So, while the market received its expected tapering message, the rate hike timeline looks it might not live up to the hype.
Since last week, several Fed speakers have come out since the meeting and talked down the possibility of a five-rate hike. Several Federal Reserve board members have put a dovish spin on the rate hike cycle, trying to cool the market down after stocks experienced their worst month since March 2020, the start of the Covid shutdown.
Higher Rates
The news of the initial rate hike rocked the stock market to its core as higher rates dampened stock market enthusiasm. I believe this is none other than a tactic to temper any panic. Inflation is rampant, and the Feds answer has always been higher rates – that’s just the reality.
Kansas City Fed President Esther George acknowledged that an immediate end to QE may lead to a more gradual increase in rates. San Francisco Fed President Mary Daily and Philadelphia Fed President Patrick Harker see only four hikes in 2022. Atlanta Fed Esther George is looking at only three for the year. They all appear to be backing away from a 50-basis point off at next month’s FOMC announcement.
Employment goals seem to have been achieved, but inflation at just above 2% is a far cry from reality and based on the current supply chain crisis and the ongoing oil price rise – it just doesn’t look likely. Even scarier, a possible skirmish on the Ukrainian border hasn’t even been factored into the equation yet.
What’s Next?
In the short term, USD dollar bulls may continue to pump the brake. We may see a continuation of USD selling as the market players feel a little less rate hike concerned – but the situation on the ground is not showing any signs of changing anytime soon. Moreover, inflation and Ukrainian uncertainty are genuine. These factors look like the perfect storm for a pullback buying opportunity for dollar bulls and resumption of the Greenback surge.
Forex Signals
Our Forex trading team is monitoring this developing situation closely, and we will alert our subscribers worldwide when it is time to trade.
