The dollar is higher in trading today following Atlanta Feb President Bostic’s hawkish comments yesterday. Bostic’s statement that the ‘pent-up exuberance’ for rate cuts (invoking the bygone era of Chairman Greenspan’s Irrational Exuberance) heightened the risk for a surge in inflation. To counter this Bostic suggested that rate cuts (once started) will not be back-to-back. Markets have already priced out three of the seven rate cuts originally expected this year, and after Bostic’s comments traders are wondering if they need to price out even more.
Some are viewing Bostic’s comments as a coordinated strategy by the Fed to prepare markets for Fed Chairman Powell’s scheduled testimony to Congress which begins tomorrow. Powell is expected to strike the same hawkish tone, doubling down on the Fed’s ‘patient’ approach to cutting rates.
The renewed hawkish tone has lifted the dollar (higher rates for longer is reason itself to hold dollars) but lowered treasury yields, one of the rare times the dollar and yields trade in different directions. Yields are lower in all tenors, with the long-term tenors bearing the brunt of the selloff: 20yr, 25yr, and 30yr are -0.06%.
Hawkish Fed comments have sparked a ‘risk off’ shift in risk assets, leading to losses the major U.S. equity indexes and driving the U.S. dollar lower vs. the Mexican peso.
Today’s economic data includes Factory Orders (est. -2.9%) and Durable Goods (est. -6.1%).
Oil prices reached the highest point of the year on Friday at $80.85/barrel but have retreated to $78.30/barrel today. Oil is +9.35% and gasoline is +21.41% YTD. Resurgent inflation compounded by higher gas prices has consumers feeling the decreased purchasing power of their wages.
Gold reached a record high today at $2,141.59/oz.
