Forex Today – 01/02: Hawkish Fed Talk Cools Stocks

Markets are now seeing a much lower chance of a rate cut by the Fed in March after Jerome Powell calls it unlikely, sending stock markets lower.

1. Yesterday’s closely watched policy meeting of the US Federal Reserve produced a hawkish twist with Jerome Powell stating a rate hike in March is unlikely. This sent the CME’s FedWatch tool’s forecast of a March cut sharply lower, to a projected chance of only 36%. Counter-intuitively, the US Dollar has continued to rise despite this hawkishness. Powell also stated good progress had been made fighting inflation but that he remained concerned that it could stabilize at a relatively high level above the 2% target. Stocks fell following the meeting, with the NASDAQ 100 Index down by almost 3% from last week’s record high, while the benchmark S&P 500 Index is down by only 1.6% from its record high made on Tuesday.
2. The Bank of England will be holding a policy meeting today. There is very little chance of any changes to the interest rate, but the wording of the statement will be closely watched.
3. Yesterday’s ADP forecast of net new jobs that will be announced within Friday’s Non-Farm Payrolls data was significantly lower than expected, predicting only approximately 100k net new jobs were created.
4. Canadian GDP data released yesterday came in slightly higher than expected, showing a month-on-month increase of 0.2% when 0.1% was expected.
5. Crude Oil is falling after consolidating near a 2-month high price despite tensions in the Red Sea and the Indian Ocean following last night’s US retaliation against Houthi missile and UAV capabilities.
6. In the Forex market, the Japanese Yen and the US Dollar have been the strongest major currency since the Tokyo open today. The Australian Dollar has been the weakest, putting the AUD/USD currency pair in focus. The greatest volatility recently has been seen in the USD/JPY currency pair. The Japanese Yen has been attracting some safe haven flow.
7. Cocoa futures reached a new multi-year high price yesterday, which will keep trend traders interested in this commodity on the long side. It has been exhibiting a powerful bullish trend for well over one year.
8. There will be releases today of US ISM Manufacturing PMI data and US Unemployment Claims.