- Powell Punts Pivot Prospects
- UK Markets closed
- US dollar roars higher
USDCAD Snapshot open 1.3067-71, overnight range 1.3020-1.3074, close 1.3032, WTI oil $93.85, Gold $1723.01
The Canadian dollar crashed and burned Friday and is still aflame today. A tsunami of US dollar buying sank the Loonie and the rest of the major G-10 currencies after Fed Chair Jerome Powell punted pivot prospects through the uprights and deep into the end zone.
Mr Powell left no doubt that forecasts of interest rate cuts in the beginning of 2023 were out to lunch after his Jackson Hole speech on Friday. He didn’t say anything he hadn’t said before, but this time financial markets understood the message.
The Fed boss said, “Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.”
And just in case people were still thinking about a pivot he said, “In current circumstances, with inflation running far above 2 percent and the labor market extremely tight, estimates of longer-run neutral are not a place to stop or pause.”
Mr Powell also said he wanted to avoid inflation expectations becoming entrenched and reminded traders of former Fed Chair Paul Volker comment in the 1979 inflation crisis. “Inflation feeds in part on itself, so part of the job of returning to a more stable and more productive economy must be to break the grip of inflationary expectations.”
Financial markets reacted as if they never heard that US interest rates would rise until inflation was tamed. Wall Street equities tanked. The DJIA closed with a 3.03% loss, while the S&P 500 finished 3.37% lower. Both indexes fell further overnight.
Japan’s Nikkei 225 ended the session down 2.66% while Australia’s ASX lost 1.95%. European bourses are under pressure as well and liquidity is poor due to UK markets being closed.
The Canadian dollar may have received some support from the jump in West Texas Intermediate from $91.20/barrel Friday to $94.37/b overnight. Traders shifted their focus back to supply concerns as the Iran nuclear talks drag on, and fears of unrest in Libya disrupting exports from that country.
EURUSD dropped from 1.0087 Friday to 0.9915, in Asia overnight, then popped to 0.996 in early NY trading. The single currency is underpinned by hawkish comments from ECB officials.
GBPUSD dropped from 1.1897 Friday, to 1.1650 in Asia, then climbed to 1.1696 in NY. GBPUSD is under pressure due to elevated recession risks and an ongoing energy crisis.
USDJPY soared from 136.60 Friday to 138.99 in Asia due to sharply higher US 10-year Treasury yields.
AUDUSD traded with a bearish bias in a 0.6842-0.6900 rang.
There are no US or Canadian economic reports today.
