Daily Wrap Up 25 May 2022

25 May 2022 04:53 PM

Fed minutes in focus, stocks higher, dollar rebounds

Traders are a little optimistic ahead of the release of the minutes from the recent Federal Reserve meeting, where rates were hiked by 0.5%. In March, the US central bank lifted rates by 25 basis points, so the 50-basis hike a few weeks ago showed us the bank are determined to tackle the high level of inflation. Since the rate hike was announced earlier this month, Charles Evan – Fed member – said he would be comfortable with another 50 basis points hike next month. Technology stocks are very sensitive to the perceptions about interest rate hikes, which is why the NASDAQ 100 has experienced a lot of volatility recently. The Dow Jones is comprised of more traditional stocks – industrial and banking – so it has also seen some volatile moves, but not to the same extent as the NASDAQ. The US 10-year yield is subdued on the run up to the Fed minutes. Earlier this month the 10-year yield hit 3%, and that indicated that further rate hikes are being priced-in by the bond market. In the past few days, the yields have fallen amid weakness in stock markets, but yields could see a spike a volatility depending on what is revealed in the Fed minutes.

EUR/USD has retreated from its one-month high as the euro has undergone a large pullback across the board. There is growing speculation the European Central Bank will hike rates during the summer following the remarks from Christine Lagarde on Monday, but now the single currency has cooled. On account of the decline in the euro, the US dollar has rebounded from the two-week low it posted yesterday. The “Kiwi” is the outperformer as the Reserve Bank of New Zealand lifted rates by 0.5% to 2%, meeting forecasts. It is worth noting that rates in New Zealand were 0.25% in early October, but since then the RBNZ hiked rates aggressively in a bid to tackle the country’s inflation problem.

Gold and silver are down on the session because of the firmer US dollar. Yesterday, the metals posted two-week highs, but they have since cooled.

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