USD crashes, stocks soar after hawkish FOMC decision
16 December 2021
The greenback cratered following yesterday's FOMC verdict, pushing the EURUSD pair above 1.13 as the Fed delivered only what had been expected and failed to surprise with more rate hikes.
The Fed sounded hawkish as Powell announced it (the central bank) would double the rate of its tapering of bond purchases amid continued rising inflation. He further outlined that the Fed will likely hike rates three times in 2022. But, as previously said, that had been already priced in the markets.
Interestingly, former NY Fed BIll Dudley saw a hidden message in Powell's remarks: "What I took away from the press conference was Powell is pretty upbeat about the economy," Dudley said on Bloomberg TV.
Dudley did not say how the Fed sees stronger GDP, higher inflation, and lower unemployment when predicting three hikes today, compared to September when every economic parameter was weaker, yet when the Fed forecast just one rate hike.
As a result, US indices flew higher and traded near all-time highs shortly after the decision. The bullish mood persisted today, sending futures half a percent higher again.
Later in the day, the Bank of England monetary policy meeting is due, and the BoE will likely leave everything unchanged as seven MPC members are expected to vote for no change in rates. A couple of weeks ago, the official consensus was for the BoE to hike rates today.
Additionally, the ECB meeting is due, and the European central bank is expected to do nothing and sound dovish - it will probably just reiterate that inflation is temporary and it should weaken next year (something the Fed used to say for the whole of 2021, but now it knows inflation will not be temporary).
Volatility will indeed be elevated throughout the day, but the overall sentiment seems optimistic in the markets.