Stocks and the Pound are moving lower, and the USD is increasing.
Stocks moved lower on Thursday, giving back some of the previous session's outsized gains after the Federal Reserve policy-setting meeting and negative economic outlooks of BoE in the United Kingdom.
Simultaneous with hawkish decisions, we can see some signs of economic slowdown in the UK. Bank of England is warning that the economy is likely to enter into recession in the autumn. The Bank of England raised its key interest rates by another 25 basis points to 1.0%, the fourth straight increase to their highest in 13 years. However, higher inflation in 30-year has increased the pressure on the central bank. Add this to the expected inflation above 10%, with a 40% rise in many households' energy bills and the economy's shocks from the Ukraine-Russia conflict.
We had the same reactions and outlook in the US as well. Last night FOMC raised the interest rates for FED found by 50 bps, as was widely expected. Now the FED target rates span 0.75% to 1.00%. Same fears of the UK could be heard in Powell's words after the meeting. The FED Open market Committee remains concerned about inflation while emphasizing that the conflict between Russia and Ukraine is "likely to weigh on economic activity." However, the same in the UK in the United States also, the fears of higher and unbridled inflation overcame the fears of recession and made the FED take a bit Hawkish decisions. On top of rate hikes, they also decided to roll off the balance sheet starting on June 1 with up to $30 billion worth of Treasury securities and up to $17.5 billion worth of MBS. This plan will increase to $60 billion and $35 billion in September.
While FED was not too hawkish about increasing the rates by 75 bps, it was still fair enough wary about the possible recession with a bit more tightening policies. At the end of the meeting, Powell said a "broad sense" that a 50 bps rate hike is on the table for the next "couple" of sessions. While a 50 bps rate hike at the June 14-15 FOMC meeting looks pretty likely, FED warns that the economy will weaken sharply because wage increases can not fit appropriately with inflation.
Last night and after the meeting US dollar lost more than 1%, but with time passing, it could recover all it failed, as market participants looked at the situation more logically. On the other hand, the Pound is losing ground in the UK, with weaker economic expectations and higher inflation above 10%. GBP is testing its lowest level since Jun 2020 against the US dollar.
Technically, the cable is also in a clear downtrend, moving under all main MA lines and increasing the market volume in bearish mode. 1.23 seems like critical support, and any breaching under this level will open the doors for the much lower levels. Bulls, on the other hand, will get encouraged only if the price returns above 1.32
Same as the US dollar reverse reaction, the stock market’s reaction in the first hours after the meeting was positive, just because the decisions were in line with expectations, but if we look at the situation more logically, there is not much hope, as SP500 also lost all its gains in today's trades. From the technical point of view, 200 DMA for S&P 500 sits at 4,500, and as long as the asset trades under this level, the bears will have market control. Still, SP500 holds the 4,000 level as the vital support, but breaching this level, will put the 3.700 in the spotlight.
