Yesterday the Federal Reserve raised the fed funds rate by 25 basis-points to a target range between 5.25% and 5.50%, a 22-year high. The rate hike was widely expected so had muted impact on market volatility. Fed Chairman left open the possibility of another quarter-point hike this year at one of the FOMC’s last three remaining scheduled meetings during 2023.
Traders remain skeptical of another hike judging by Fed Funds Futures which imply sub-23% probability hikes at the FOMC’s September and November meetings and a 16.5% likelihood of a cut at the December meeting.
Today’s key economic data releases for the U.S. were above survey estimates. Annualized quarterly GDP for Q2 was 2.4%, beating the 1.8% estimate. Preliminary Durable Goods Orders for June were 4.7%, much higher than the 1.3% estimate. And Weekly Jobless Claims were 221k, est. 235k.
The ECB raised its deposit facility rate today by 25 basis-points to 3.75%. In its rate announcement statement key wording was changed from ‘Inflation has been coming down’ to ‘inflation continues to decline’ and signaling that future rate rates were essentially a 50/50 coin toss.
The USD has surged following the ECB’s rate action with the U.S. Dollar Index now 0.70% following the hike. The EURUSD is -0.94% since the ECB’s hike and is -0.50% for the day.
The dollar is mixed against its G10 counterparts, the biggest gain now vs. the EUR, but also advancing 0.46% vs. the GBP, 0.33% vs. JPY, and 0.31% vs. CHF. The dollar’s widest decline is a 0.29% drop vs. NZD.
U.S. equity futures are signaling a higher open today, following global equity indexes which are in the green today.