*BoE expected to unveil steepest interest rate rise since Black Wednesday

*Fed signals smaller increases, but ultimately higher rates

*US dollar firms after choppy session post-FOMC statement and presser

*Asian stocks mostly lower following Wall Street’s sharp about-turn

FX: USD completely reversed losses after the Fed’s statement “pivot”. The hawkish commentary at Powell’s press conference saw a complete unwind in the dollar, stocks and bonds. The DXY is up for a sixth day in a row and trading above the 21-day SMA at 112.07.

EUR/USD is trading lower for a fourth straight day. The world’s most popular currency pair is firmly back in the long-term bear channel. GBP/USD stayed above 1.1409 for most of the day with a high of 1.1565. But prices slipped below 1.14 in the US session. Attention turns to today’s BoE meeting and rate decision. USD/JPY spiked lower to 145.67 before bouncing strongly and is trading just above the multi-decade high at 147.67.

AUD/USD got close to 0.65 before falling below the September low at 0.6363. The negative risk tone, softer commodity prices and disappointing Chinese data weigh.  USD/CAD has pushed up above the 21-day SMA and 1.3628 Fib level. We get Canada jobs data out tomorrow. Gold is subdued and looks to be heading towards major support around $1617.

Stocks: US equities closed on their lows after a volatile session. After sitting on gains of more than 1% before Powell’s press conference, stocks went south quickly. The Dow closed lower by-1.55%, S&P 500 fell -2.5% and the Nasdaq tanked -3.4%. As yields pushed higher, so stocks collapsed. There was no surprise that tech and growth underperformed while defensive value did better.

Asian stocks are lower with global risk appetite soft. This is not helped by the possible non-reopening Covid story in China and a deterioration in Chinese Caixin PMI. The ASX 200 was pressured due to weakness in mining-related sectors. The Hang Seng was negative after disappointing data.

S&P 500 futures are modestly in the red. European equity futures are firmly lower after cash markets closed up 0.8% yesterday.

Event Takeaway – Slower, longer and higher Fed funds rate

Price action during the Fed meeting was choppy and the hoped-for pivot trade (stocks up, dollar down) only lasted for 30 minutes or so. “Cumulative tightening” and the lags with which policy affects the economy were new (dovish) additions to the statement. But Powell’s press conference hammered home the message that the ultimate level of rates will be higher than previously expected.

The speed of rate moves is now less important. The focus is on the peak/terminal rate. Powell insisted the Fed have in no way overtightened. In fact, he said several times that they “still have some ways to go”. In simple terms, it’s about the destination, not the journey and a slower pace of rate hikes doesn’t mean lower rates. Much will of course depend on the data. But with markets taking the peak rate to its highest in the cycle above 5%, the dollar should remain supported. High beta and commodity currencies may fare the worst.

Chart of the Day – GBP rolling over

It’s the turn of the Bank of England in a few hours to announce their rate decision. Markets expect a jumbo 75bp which would be the biggest hike since the MPC went independent and take rates to 3%. Double digit inflation is the issue though recession risks are high as growth craters. We note that the MPC does tend to err on the side of caution. In fact, the bank has hiked less than market expectations in six of the last eight meetings.

GBP/USD hit the top of the long-term bear channel and looks like it will now fall lower. Yesterday’s whippy session saw prices close on their lows below the pandemic bottom at 1.1409. The 50-day SMA is at 1.1346 with the 21-day just below. If we lose these on a smaller hike or new grim BoE forecasts, bears will look at 1.1157 and below.