- The USD was lower to start the day. Now higher
To start the US trading session (and before the US CPI), the USD was mostly lower. The GBP and the EUR were the strongest of the majors and the NZD was the weakest. The USD was right behind the NZD on the weakish end of the currency spectrum. See the ranking above to see what the picture looked like before the data.
Since then the market has had some volatile up and down price action but overall, the GBP and EUR remain the stongest. The NZD is still the weakest, but the USD has moved higher and is up vs all the major currencies with the exception of the GBP. The dollar is unchanged vs the EUR.
Looking at the yields, the 2 year moved from 4.498% to the current yield of 4.622% (up 10 bps). The 10 year moved from 3.688% to 3.78% up 7.5 bps on the day.
The S&P was implying a gain of 14 points just before release. It is now down -20 points. The Nasdaq was up 45 points. It is now down -40 points.
Of interest as well is that the Fed Fund rate outlook now has the target rate above the Feds last terminal rate of 5.10%. That terminal rate might be higher now, but of importance is the "market" is now seeing 5.29% as the terminal rate.
Fed Watcher Timiraos spoke to this in his latest tweet when he tweeted:
In Fed speak today after the CPI, Logan said:
- Even after pausing, need to stay flexible then tighten further if conditions call for it
- Need continued gradual rate hikes until we see convincing evidence inflation is falling to 2% in a sustainable, timely way
- Tightening policy too little is the top risk
- Tightening too much or too fast risks weakening the labor market more than necessary
- Should not lock in a peak Fed policy rate or precise rate path
- There has been some progress, need to see slower inflation in services
- Little sign of improvement in core services ex housing inflation
- Need a better balance in labor market to bring inflation back to 2%
Logan is flexible but the limit to rates is not yet defined.
For Fed's Barkin:
- Businesses now see pricing as a lever
- There's going to be a lot more inertia and persistence in inflation than we want
- It will take awhile for us to get inflation back to target
- May or may not take rates higher if inflation persists, will react to data
- If inflation settles, we might not go as far on the rate peak, it all depends on the data
- There is a very good case for leaving rates higher for longer for a period of time
- Lesson of the 1970s is don't give up too early
- My view on rates is two-sided depending on what inflation does
- Biggest surprise has been the jobs market
- Last month's jobs gains were much stronger than anticipated
- For me the risk of doing too much is outweighed by the risk of doing too little
The final comment that the risk of doing too little outweighs the opposite says he too does not have a limit yet to rates.
Trading analysis offered by Flex EA.
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