ForexLive Americas FX news wrap: Powell ignites the US dollar

Markets:

  • Gold down $30 to $1816
  • US 10-year yields up 7 bps to 1.85%
  • WTI crude oil up $1.04 to $86.63
  • S&P 500 flat at 4354
  • USD leads, JPY lags

There was plenty to digest today but the main event was the FOMC. The statement was vanilla but there were hints of what to come with a surprise statement on balance sheet principles. That kicked off some minor jitters.

The real fireworks came from Powell who made no effort to temper a hawkish message. He said rates can rise ‘quite a bit’ before hurting employment, he said he would be inclined to boost his inflation forecast this year ‘a few tenths’ with upside risks and didn’t even rule out moving by 50 bps, something that even hawk Waller recently ruled out.

The dollar surged on the hawkish turn, bond yields jumped led by the front end and stocks crumbled, giving up big gains.

Commodity currencies were hit especially hard with AUD/USD down to 0.7100 from 0.7170. The euro also sank to the worst levels since December 15, dropping to 1.1241 from 1.1295.

It was a broad USD rally, with USD/JPY even adding 40 pips.

Earlier in the day, the BOC delivered a somewhat surprising hold but that was talked back a bit with hawkish commentary that makes it very clear that a hiking cycle is starting in March. That helps explain why the loonie remains near the top of the G10 pile, with a hefty dose of help from the oil market hitting 7 years highs.

FX news wrap Jan 26

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