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Risk Sentiment Turns Negative Again After Hawkish FED Rhetoric

The dollar began the day sliding lower, with USD/JPY slipping below 147. However, the trend shifted soon after some soft economic data from Europe, following the further slowdown in China that we saw from the manufacturing and services PMI figures earlier. Markets upped their bets on the European Central Bank reducing interest rates next year, with inflation also slowing in the Eurozone.

As a result, the euro fell, with EUR/USD sliding from 1.0975 to 1.0950 before extending losses to 1.0910 as the dollar stayed strong. The pair is now trading below its 100-hour and 200-hour moving averages of 1.0959 and 1.0938, respectively. As a result, the short-term trend is bearish.

The dollar recovered more ground, with USD/JPY recovering to 148.50 before reversing down to around 148. The commodity currencies were stronger versus the dollar earlier, but those gains have since faded, with the AUD/USD sliding from 0.6640 to 0.6600 and the NZD/USD falling from 0.6180 to 0.6150. Earlier we got the PCE price index and unemployment claims from the US, which came close to expectations, followed by some hawkish rhetoric from FED members, which are keeping the demand on for the USD.

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Comments from the New York Fed President Williams

  • If inflation pressures persist, we could hike again
  • We are at or near the peak of the interest rate target

Daly is the unofficial voice for the FED chairman Jerome Powell, and her comments aren’t as dovish as some of the previous comments this month. The key question concerning the Fed is whether it will take a more neutral or officially neutral approach at its future meeting, but she doesn’t seem like she is there yet (though she isn’t far off).

FOMC Member Daly Speaking

  • It’s still too early to know if the FED is done hiking rates
  • ‘Should take our time now and remain vigilant’
  • Need to better understand what’s happening with the economy and inflation
  • Latest data is encouraging
  • I’m not thinking about rate cuts at all right now
  • Economy needs to cool down a little more
  • Further rate hikes are not our ‘base case’
  • Hearing more and more it is harder for companies to pass along price hikes
  • People’s fear of recession has faded into the background

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Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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