Forexlive Americas FX news wrap 7 Mar: Powell leans toward an acceleration toward 50 bps | Forexlive

Fed Powell did NOT release his prepared speech to the markets ahead of time, like he has in the past. Was he trying to ease the blow from what he was to say ahead of the stock opening? Maybe.

When the headlines were released at 10 AM ET, his tilt was definitely to the more hawkish side. More specifically he said:

• “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

Now he did say the decisions are still on a meeting by meeting basis, but given the recent data (retail sales higher, jobs stronger, inflation not letting up ex housing), and an expected solid jobs report on Friday (+225K), and CPI next Tuesday slated for something like 0.3% to 0.4%, it seems 50 bps on March 22 is just a matter of the clock ticking to, and through, each of those releases.

The expectations for a 50 bps hike in March moved from around 22% before his testimony, to around 43% shortly after the headlines hit the newswires. A short time later that expectations moved up to about 50%, and is now ending the day closer to 60%. The terminal rate is now near 5.60% (so 5.50% to 5.75%).

In response to that repricing, the 2 year yield jumped 12 basis points and is now up just short of 100 basis points since the February 3 low at 4.03% . The yield is currently at 5.014%.

The 10 year yield did not follow the lead from the shorter end, as its yield is trading down -1.3 basis points at 3.965% after reaching a high of 4.005%. That flattener trade now puts the 2-10 year spread at -104 basis points. That is the most negative spread going back to July 1981. The curve is suggesting that the Fed will be forced to tighten too much in order to get inflation lower.

Stocks tumbled with the Dow falling the most, but all three major indices fell by at least -1.25%. The final numbers are showing:

• Dow Industrial Average -574.98 points or -1.72% at 32856.47
• S&P index -62.07 points or -1.53% at 3986.36.
• NASDAQ index -145.39 points or -1.25% at 11530.34

The USD is by far, the strongest of the majors, and the AUD is the weakest. That combination has the AUDUSD down -2.05% near the close for the day.

The AUD started the US session as the weakest of the major currencies after the RBA raised rates by 25 basis points overnight. However, the hike was considered a “dovish hike”, and that sent the AUD and AUDUSD lower. Powell’s comments accelerated the move to the downside for that pair.

Overall, the greenback rose 1.63% vs the GBP, 1.36% vs the NZD and 1.22% vs the EUR. The USDJPY was the laggard but it still rose a healthy 0.91% vs. the USD.