CIBC

FX Flows

From our economics team: Another 50 bps move seems likely at the next meeting as a result, but the statement didn’t hint at anything more than “ongoing increases”. There were no dissents in favour of a larger hike today. We still expect that as rates approach 2% later this year, there will be enough signs of cooling inflation and growth to return to 25 bp moves, with a peak in the mid-2% in early 2023.

This is what our macro strategist Bipan said, not really realistic for Powell to commit that far out, so I wouldn’t characterize that comment as particularly dovish with regards to markets. However just listening to Powell, I get the sense that he’s grown more concerned with respect to inflation and expectations thereof. Powell started the presser off by reassuring the audience that they understood the risks of too high inflation. Comments on “further surprise” on inflation possibly in store plus “inflation may flatten, but not drop”. Bipan said the market reaction is largely a function of positioning going in. But peel that away and you’re still left with a very hawkish central bank. That should cushion the US$ against the funders once the take profit move is done for.

Our head of rates trading Pawan asked since when was 50 bps hike considered dovish? Fact is market is pricing in excessive and Fed not mentioning 75 bps just got people taking profit. Pawan believes the Fed will go another two times of 50 bps hike then pause.

$YEN briefly moved up to 129.54, there are suspicions that the move was caused by Japanese retail but with Japan closed today, it was all a speculation. Market slowed down, eventually weakened to 128.765.

AU$ remained supported, despite weak CNH and Caixin PMIs. Trade surplus widened in April to AU$9.3bn beating estimates of AU$8.4bn. Commodity futures also firmed up. Strong resistance noted near the 100-day SMA which lies at 0.7262. Think we could be locked in range until payrolls tomorrow. Large option strikes at 0.7300 for AU$2.05bn and AU$780mio at 0.7200.

EUR$ firmed up to 1.0642 after stops triggered above 1.0630. Large strikes at 1.0600 for €1.82bn mature today.

Macro strategist Jeremy Stretch said we expect the BoE to hike rates by a further 25 bps at today’s meeting, with rates rising to 1.0%. Such a move will take the bank to the threshold at which it previously announced it would consider moving from passive to active QT.

Citi

European Open

A dovish FOMC yesterday in the US session raised rates by 50bps, and Fed Chair Powell essentially took 75bps off the table for future meetings. UST yields dived, along with USD, while equities soared. The Asian session felt the reverberations of the decision, although by and large it was a somewhat tranquil session. AUD dipped lower slightly, and Aussie rates bull steepened alongside the UST moves overnight. Moves higher in NOK and lower in GBP came ahead of their respective rate decisions, as focus shifts away from the FOMC. PHP CPI came in hotter than expected while THB headline CPI came in under consensus.

Looking ahead, we will see a flurry of rate decisions. GBP, CZK, PLN and CLP are expected to be live, while decisions in NOK and HUF are not. We also see OPEC+ meeting today, where they are expected to agree to raise production targets by 432k bpd for June. We will also see CPI prints from CHF and TRY, as well as ECB speak. Lastly, we flag that JPY, ILS and KRW are on holiday.