Powell said it- Not considering 75bps rate hike! Do markets believe him?

Inflation is skyrocketing. Next week the US will release April’s CPI print. Recall that the March headline print was 8.5% YoY vs a February reading of 7.9% YoY. This was the highest reading since December 1981. The core CPI for March was 6.5% YoY vs February’s reading of 6.4% YoY. This was the highest core CPI reading since August 1982. Today, the US released the Q1 labor costs in the US Nonfarm business sector. The headline print was 11.6% vs an expectation of 9.9% and only 1% in Q4, 2021. Again, this is one of the highest readings in 20 years. Tomorrow the US will release Nonfarm Payroll Data. The Fed will not only be watching the headline print, which is expected to be +395,000, but also the Average Hourly Earnings, which is expected to rise by 0.4%.

What are non-farm payrolls?

At yesterday’s press conference following the FOMC’s 50bps rate hike, Powell said that inflation is much too high. (See our complete FOMC recap here.) Powell began his press conference by addressing the American people directly regarding inflation, saying “we understand the hardship it is causing, and we are moving expeditiously to bring it back down”. Given the recent economic data and recent comments from Fed’s Bullard (who is extremely hawkish) and the initial comments from Powell in his press conference, the market became giddy with the possibility of a 75bps rate hike. However, just a few minutes later, Powell confirmed that “75bps isn’t something the FOMC is actively considering”. And with those comments, the air was let out of the balloon for US Dollar bulls.

Everything you need to know about the Federal Reserve

But do the markets believe him? USD/JPY sold off aggressively once it was announced that 75bps was not on the table, from a high of 130.37 down to a low of 128.62. However overnight, the pair has reversed and taken back all of yesterday’s losses!

Source: Tradingview, Stone X

Trade USD/JPY now: Login or Open a new account!

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore

On a daily timeframe, the long-term trend in USD/JPY is still higher. The pair began moving aggressively higher in March and has recently formed a flag formation with the RSI in overbought territory. After the breakout of the formation, price began its move towards the target of 134.75. However, the USD/JPY is consolidating once again in another corrective formation. If the pair closes above 130.13, price will have formed a bullish engulfing pattern, an indication that USD/JPY may be ready to continue its move higher. The first level of resistance is at the April 28^th highs of 131.25. Above there, horizontal resistance crosses at 131.84 and again, just above the flag target, at 135.16. Support below isn’t until yesterday’s low at 128.62 and then the lows at the bottom of the flag pattern near 126.94.

Source: Tradingview, Stone X

A 75bps rate hike is something that the Fed is not actively considering. Do the markets believe Powell? Based on today’s price action so far, it doesn’t seem like they do! Watch for continued volatility with US Non-Farm payrolls tomorrow.

Learn more about forex trading opportunities.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.