Dollar Dips Following 3-Day Rally; Powell Stays Hawkish as Inflation Battle Persists; Fed Signals Higher Chance of July Rate Hike
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- Dollar drops after 3-day rally
- Powell remains hawkish; bringing down inflation has a long way to go
- Fed swaps price in a 69.2% chance of a hike at the July 26th FOMC meeting
US stocks declined as Fed Chair Powell’s testimony to the House affirmed the Fed’s threat of higher rates to combat inflation. Wall Street should not have been surprised by Fed Chair Powell’s commitment to vanquish inflation, but swap futures are still only pricing in one more rate hike. Powell reiterated that the economy is strong but that inflation remains elevated.
The Fed is clearly not nearing the end of its tightening cycle and if other central banks seem poised to deliver more than a couple rate hikes, that might make it easier for the Fed to remain aggressive with tightening. Powell said lowering inflation has a long way to go and that could very well mean that they won’t stop until the fall.
Oil
WTI crude prices are finally stabilizing above the $70 level as energy traders anticipate the start of summer should keep demand steady over the next few months. Oil got a boost from a weaker dollar and optimism that the economy will remain strong throughout the summer. Oil was getting near the bottom of its recent trading range and it could continue rebounding if the headlines for China remain upbeat.
The oil market is going to remain tight thanks to OPEC, so that should make trading a little easier for energy traders. Most energy analysts envision $80 oil at some point this year, so any bullish headline could get us there. Hurricane season is also here, and we might be getting our first taste of it with Tropical Storm Bret.
