Wait a minute(s)
If mid-December isn’t far too long ago to recall following the festivities, you will remember the Federal Reserve’s decision as the catalyst for the latest leg lower in the Dollar. This was largely because the market saw the Fed blink in both its rhetoric and projection surrounding rate cuts and the need for further restrictive policy. For the remainder of the month the fixed income and FX markets alike piled into positions foreshadowing the demise of the Dollar and Treasury yields alike. Undeterred by the likelihood of some year-end Dollar buying, that trend had featured in most early Dollar forecast for 2024.
However, minutes released of this same decision this week showed the Fed may not be feeling quite as dovish as that decision had led many to believe. Some rebalancing of short USD and recent treasury buying trends have been seen already and could be just the start of more to come. As many as six cuts to the Fed’s benchmark interest rate had been forecast only a week ago. In the light of the minutes, this will seem overzealous to many forcing a further correction in expectations.
The stellar performance of US stocks and tech in particular as we noted yesterday as a defining feature of 2023 markets will be threatened by these minutes. Within the minutes, despite still conceding that the peak rate had indeed probably been reached, it showed a far greater willingness to hold rates at current levels before feeling the need to cut. Overall, the minutes showed that the blink that the Fed had indeed made in mid-December wasn’t a chink in the armour – it was the full picture according to policy makers.
Discussion and Analysis by Charles Porter
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