Headlines

* Fed traders see pivot from rate hikes to cuts in second half of 2023

* ECB set to raise rates a half-point as focus turns to March meeting

* BoE to lift rates to 14-year high, might hint at next moves

* Meta shares soar on resilient revenue and $40bn in buybacks

FX: USD fell as the Fed stepped down its rate hikes to 25bps. It signalled progress in its fight against inflation and didn’t push aggressively back against the market. The DXY tumbled to its lowest level since April last year. It closed at 101.17. Treasury yields fell with the benchmark 10-year yield falling around 12bps to 3.40%. The 200-day SMA, which acted as support in mid-January is at 3.36%.

EUR broke out of its bullish consolidation in line with the long-term dominant trend. It closed at its highest level since April at 1.0988. The major has hit fresh highs this morning at 1.1032 ahead of the ECB meeting and rate decision. GBP gained 0.47% as it reversed losses before the FOMC meeting. It remains below 1.24 this morning. USD/JPY dropped yesterday and moved down out of its recent sideways range. Today’s low is 128.17 though it has recoiled from here.  AUD snapped a three-day losing streak to push to new cycle highs this morning at 0.7157. The next upside target is at 0.7247. The RBA meeting is next week. USD/CAD moved to the bottom of its recent range as it eyes 1.3223 support.

Stocks: US equities closed higher after a whippy session around the FOMC meeting. The S&P 500 reversed early losses to finish 1.05% higher. The benchmark index closed at its highest level since August. The Dow settled marginally higher +0.02% after dropping 500 points around the Fed. The tech-laden Nasdaq closed up 2.16%. Meta reported better-than-expected sales during the holiday quarter fuelled by strong demand for advertising. It also gave a rosy outlook for the year and announced a huge $40 billion share buyback. Amazon, Apple, and Alphabet release their Q4 results after tonight’s closing bell.

Asian stocks traded mostly higher. The Hang Seng initially gained but price action was choppy. The PboC continued its post-holiday liquidity drain. The HKMA raised rates in lockstep with the Fed.

US equity futures are solidly in the green. Nasdaq futures are up nearly 1% on the back of Meta’s 20% rally after hours. Futures in Europe are indicating a higher open too (+0.7%). The cash market closed up 0.2% yesterday.

Gold jumped higher and has posted new highs this morning at $1957. The falling dollar and yields are boosting the precious metal.

Day Ahead – ECB and BoE to hike 50bps, so what’s next?

Fed Chair Powell’s two-sided remarks last night pleased the market who had been expecting a more hawkish FOMC. While he said the disinflationary process has begun, it’s a different story in Europe. The ECB and BoE are both expected to raise rates by 50bps. The announcements come within 45 minutes of each other. We get fresh MPC growth and inflation forecasts as it’s a “Super Thursday” in London.

The ECB is likely to sound very hawkish and signal that more rate hikes are coming. Guidance on another 50bp rise in March is getting a lot of airspace. More “significant” moves beyond this and into the summer would please the hawks no end. Yesterday’s latest inflation data showed how that the core readings remain sticky. EUR/USD looks bullish as it holds above 1.0929/42.

The BoE is in a more delicate position. It has more serious recessionary risks on its hands combined with higher inflation. That probably means its job is almost done raising rates. Strong wage growth is sustaining the MPC hawks. But the voting split should lean towards a more cautious road ahead.

Chart of the Day – GBP/USD still hovering below major resistance

Sterling has lagged the euro and the antipodean currencies this year. Those central banks are still expected to continue with policy tightening in the next few months. The BoE has a horrible job navigating slowing economic activity and still sky-high price pressures.

Cable is holding within its recent trading range. The major is above last week’s low at 1.2265. This is decent initial support and staying above here should limit downside. The 50-day SMA is at 1.2191. Strong resistance sits around 1.2450. The more prices consolidate in tight ranges, the bigger the breakout, which is normally in line with the dominant long-term trend.