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Fed: Interest rates need to keep higher


Stay ahead of the game with today’s market insights brought to you by the expert team at vtmarkets.com.

US stocks declined sharply on Wednesday, suffering heavy daily losses, and were dragged lower by a selloff in tech stocks as Federal Reserve speakers reinforced the idea that interest rates will need to keep climbing to quash inflation.

Fed Governor Christopher Waller teased a long fight with a 2.0% inflation target by citing expectations of tighter monetary policy for longer than expected. Meanwhile, Governor Lisa Cook also said that the central bank remains focused on restoring price stability, as inflation is still running too high. Therefore, hawkish comments from the US policymakers provided support to the US Dollar and exerted bearish pressure on the equity markets.

On top of that, the mixed concerns surrounding the latest geopolitical tension between the US also acted as a tailwind for the greenback. On the Eurozone front, European Central Bank policymaker Klaas Knot said that headline inflation appears to have peaked but added that keeping the current pace of hikes into May could well be needed if underlying inflation does not materially abate.

The benchmarks, S&P 500 and Dow Jones Industrial Average both declined lower on Wednesday as the S&P 500 almost wiped out its previous session’s rally amid hawkish comments from the US policymakers. The S&P 500 was down 1.1% daily and the Dow Jones Industrial Average also dropped slightly with a 0.6% loss for the day.

All eleven sectors in S&P 500 stayed in negative territory as the Communication Services sector and the utility sector are the worst performing among all groups, losing 4.13% and 1.71%, respectively. The Nasdaq 100 meanwhile retreated the most with a 1.8% loss on Monday and the MSCI World index was down 0.5% for the day.

Main Pairs Movement

The US dollar advanced higher on Wednesday, rebounding from a daily low, and held onto its recovery moves towards the 103.50 level amid hawkish Federal Reserve comments. The Fed officials including Chairman Jerome Powell renewed inflation fears and allowed the US Dollar Index (DXY) to regain upside momentum. However, receding woes of the US-China ties and a light calendar might limit the upside for the US Dollar.

GBP/USD advanced higher on Wednesday with a 0.20% gain after the cable struggled to maintain its feet and gradually dropped to the 1.2060 area amid the souring market mood. On the UK front, the UK GDP is expected to display a flat performance every quarter on Friday. Meanwhile, EUR/USD also remained under pressure around the 1.0710 area amid a modest US Dollar comeback. The pair was down almost 0.13% for the day.

Gold advanced slightly with a 0.13% gain for the day after touching a daily high at $1886 during the European trading session, as the statements highlighting inflation fears from the US diplomats weighed on the yellow metal. Meanwhile, WTI Oil rebounded higher with a 1.74% gain for the day. The solid China recovery is expected to keep the oil price in bullish territory.

Make informed decisions with the most up-to-date and reliable financial data, exclusively provided by vtmarkets.com.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
EUR                German CPI (YoY) (Jan)15:008.9%
GBP                BoE MPC Treasury Committee Hearings17:45 
EUR                EU Leaders Summit 18:00 
USD                Initial Jobless Claims21:30190K