So a couple of notable comments Powell made yesterday. He was very positive on the labour market, so much so that he stated “there is quite a bit of room to raise rates without dampening employment”. Get your market update from JMcQueenFX here:
A very hawkish press conference from Chair Powell, perhaps a surprise to some , in light of the recent rout we have seen in the last two weeks, in response to tightening financial conditions, which I believed Powell would take note of, allowing for a hawkish disappointment. Instead, we saw the opposite with the Fed Chair unperturbed by recent market volatility, endorsing the tightening of financial conditions.
When asked about moving 50bps, the Fed Chair responded by stating that the Fed has not made any decision on the size of rate increases. In other words, not explicitly ruling out a 50bps and thus money markets have priced in 30bps worth of tightening in March. However, for now, I still expect a 25bps rate liftoff.
Elsewhere, the Fed Chair did not rule out a rate hike at every meeting, which in turn has prompted the market to price in near enough 5 rate hikes this year. Very aggressive indeed, emphasising Powell’s uber hawkish presser. The outlook is far from uncertain and will be impacted by upcoming data, which recently soured. Perhaps due to the impact of Omicron, but something to keep an eye out on.
As such, if a UK portfolio manager holds US Dollar-denominated assets and seeks to hedge FX risk, then a monthly rise in the value of those assets will lead to more dollar hedging . For example, if equities are FX hedged and US stocks (
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