Yesterday brought the main event of this week, and volatility was again highly elevated.

The Fed left monetary policy unchanged yesterday, as widely expected, but the following statement was of more importance and sounded hawkish. 

In the statement, the Committee announced the final two reductions in the amount of their monthly asset purchases, bringing purchases to an end in “early March.” At the same time, the FOMC now expects that it will “soon be appropriate” to raise the fed funds rate – almost certainly happening at the next Fed meeting in March.

Additionally, governors updated the statement to note that inflation is “well above” the FOMC’s two percent target (previously described as “having exceeded 2 percent for some time”) and that the labor market is “strong,” dropping the judgment that the economy is short of full employment.

All risk assets declined notably after the FOMC decision – the Nasdaq 100 index erased its 4% daily gain, while other indices also fell sharply. Additionally, bonds cratered, sending their yields firmly higher – the 10-year yield jumped toward 1.9%, while the 2-year yield shot nearly 20% higher from 1.00% to 1.20%. Since the short-term yield rose much more than the 10-year yield, the yield curve flattened strongly, implying an economic slowdown in the future. 

Both gold and silver cratered as yields surged higher. Silver fell from 24 USD to 23 USD today, while gold declined toward 1,810 USD. 

In the FX, the greenback surged, pushing the EURUSD pair down to 1.12, testing last year’s lows. If the euro falls below that level, large stop-losses could be hit, possibly pushing EURUSD toward the psychological level of 1.10. 

Source: https://www.axiory.com/analytics/market-news/markets-in-risk-off-regime-following-hawkish-fed

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About Author

Peter comes from a background in corporate finance which began in 2013 when he completed the Corporate Finance Program at the University of Economics in Bratislava. He’s been actively involved in the market sector since 2008 and got his hands-on experience in trading in 2011. His experience in finance and trading continues not only as a market analyst at Axiory Intelligence but also through his studies to obtain a degree in Capital Markets. The study is in line with MIFID II regulations and is under the supervision of the European Regulator ESMA, which strongly emphasizes ethics and morale in investing and working with a client.

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