Following comments from new Fed chair Jerome Powell the markets seriously lacked a sense of direction this Tuesday – that is, all bar the dollar, which was more than happy with what it heard.
The Dow Jones dropped 0.2% after the bell, falling from 22700 following the hawkish hints contained in Powell’s first real statement since taking over from Janet Yellen. The Fed chair claimed the US economy ‘remains strong’, and that ‘some of the headwinds’ it has faced have ‘turned into tailwinds’, arguing in particular that ‘fiscal policy has become more stimulative’. These kinds of comments, largely in line with where Yellen left off, keep 3 FOMC rate hikes on the table in 2018, a rebuke to those who thought Powell might sound a bit more dovish on his first time in the spotlight.
Of course the dollar was overjoyed by the maintenance of this hawkish schedule. Against both the pound and the euro the greenback rose 0.6%, sending its rival currencies back below $1.39 and $1.225 respectively; against the yen, meanwhile, it jumped half a percent to hit a 5 day high.
Once upon a time the weakness of the euro and the pound would have been catnip for the FTSE and its eurozone peers. However, in such an interest rate-fearing climate things are so simple – hawkishness, regardless of where in the world it is coming from, is cause for concern, explaining why the UK, German and French indices were all mired in the red (if, admittedly a lighter hue than we saw earlier in the day).
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