Headlines

*FOMC hikes by 75bps for second month in a row, abandons guidance

*Wall Street rallies after Fed Chair suggests rate increases may slow

*Yen climbs to strongest level in three weeks as dollar drops

*US expected to dodge technical recession with weak Q2 growth

US equities rallied with the S&P500 ending the day 2.62% higher. The tech-laden Nasdaq notched a 4.26% rise, marking its biggest daily gain in more than two years. Positive earnings reports from big tech also helped bolster confidence with Alphabet and Microsoft shares jumping 7.7% and 6.7%, respectively. But Meta traded lower after hours as it forecast revenues below estimates. Asian markets are more subdued while US futures are indicating a negative open.

USD sold off reversing its gains from the previous day amid a less hawkish Fed meeting. The DXY lost 0.7% to close at 106.50. Support is 106.11 ahead of 105.78. EUR moved above 1.02 but faces resistance above 1.0260. The euro lagged GBP as EUR/GBP moved below 0.84. USD/JPY is the big mover this morning, off 0.9% and near long-term resistance/support at 135.16. AUD traded near 0.70 and USD/CAD fell to near 1.28.

Event Takeaway – Data dependent FOMC buoys risk assets

The Fed hiked rates by a second 75bps in two months as expected. But crucially Chair Powell was deemed as less hawkish than expected. Hopes are now high that the pace of monetary policy tightening could slow soon. The Fed is seen as open to the possibility of smaller rate rises going forward.

“At some point, it will be appropriate to slow down…” was taken as the signal for the dollar to sell off and risk assets to go bid. “We’re going to be guided by the data” indicated less dramatic rate rises at its next three meetings than in the last two. Recent inflation and job market dynamics potentially suggest a more cautious approach into next year.

Chart of the Day – Cable breaks higher into trendline resistance

We get Q2 US GDP data ahead of the core PCE figure released on Friday. The former risks coming in weak or even negative. Interestingly, Treasury Secretary Yellen has scheduled a press conference today to discuss the economy. This is raising speculation that the growth data may be bad. It’s been quiet for UK data watchers after last week’s splurge and ahead of next week’s BoE meeting.

After a few days of “doji” candlesticks, GBP/USD has followed its peers higher. The strong advance yesterday has taken it above 1.2155 and into the downward trendline from the February high. Bulls will target the 50-day SMA above here at 1.2226 and then 1.2332. Support sits in the mid-1.20s.