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Fed remains hawkish on rates, keeping USD well bid

More Federal Reserve members have nailed their hawkish colours to the mast, indicating that only when inflation is showing firm evidence of stabilising will the Fed start to rein back their aggressive attitude to rate rises.

Video Transcript

NPFs and Fed rates

Federal Reserve (Fed) policymakers are particularly attentive to the Non-Farm Payrolls (NFP) data released today, which is expected to give a steer for the week in terms of the overall performance of the dollar.

But it's unlikely that it will shift the minds of the many Fed members that have been talking about the future for interest rates this week. From the perspective of what's happening in the US economy, there's now little doubt among economists that the Fed will do anything other than go for 75-basis points (bps) for the fourth time in the row.

Newly appointed Fed member, Lisa Cook is the latest to support the bank's broad consensus for continued interest rates hikes. This is what she said in her first public comments on monetary policy yesterday. "US inflation remains stubbornly and unacceptably high and data over the past few months show that inflationary pressures remain broad-based and must come down. We will keep it there until the job is done."

Cook is the latest to relay the Fed's willingness to raise its target policy rate to restrictive levels, it is not there yet, even at the risk of less economic growth and more unemployment.

We've got a lot of commentators concerned about the outlook for a possible recession. Fed governor, Christopher Waller, yesterday said he anticipated additional rate hikes into early next year. Chicago Fed President Charles Evans said inflation is high right now and we need a more restrictive setting of monetary policy.

Neel Kashkari, a very well known hawk on the board, says at this point there has been almost no evidence that inflation has even peaked. And the New York Fed, John Williams, said our job is not yet done. Cleveland Fed president, Loretta Mesta, another one, saying her presumption is that we will not be cutting rates next year at all. And Fed President, Mary Daly, saying we're going to raise the rates until we get into restrictive territory and then we're going to hold it there until inflation comes down closer to 2%.

EUR/USD

I just wanted to remind you as to what's happening with this EUR/USD trade.

I think this is the area where we really do have to be cognisant of the direction of travel. We've got these lower highs, these lower lows recently. We dipped below the 9550 level, and that is definitely going to be the target area that we go for for this trade. And just to remind ourselves that we're at levels pretty much now not seen since July 2002.


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