Markets to yield to hawkish Fed speak?

Market reports
Thanim Islam
  • GBPUSD and EURUSD retreats off 2-month highs
  • RBA hike by 0.25%
  • Fed speaks to direct markets

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GBPUSD and EURUSD continued their moves higher over the course of the afternoon, as a follow-through of last week's US job numbers and Fed meeting. However, the gains were limited and over the course of the evening the USD gained traction once again, after US treasury yields gained once again. Fed speaker Neel Kashkari pushed back on future rate cut expectations by stating that he would support overtightening to bring inflation down to 2%.  On the data front, final service PMIs from Europe came in as expected at 47.8. UK construction PMIs rose but failed to climb as high as expected.

The Reserve Bank of Australia hiked interest rates by 0.25%, taking the target rate to 4.35%. However, the hike was considered a dovish hike, causing AUD to weaken across the board.


Market rates

* Daily move - against G10 rates at 7:30am, 07.11.23

** Indicative rates - interbank rates at 7:30am, 07.11.23

Data points


  • EUR: ECB Nagel
  • USD: Fed Kashkari, Goolsbee, Barr, Schmid, Waller, Williams, and Logan

Our thoughts

Still all about US treasuries and whether the market is correctly pricing the extent of how long the Fed will keep rates higher for longer. Last week's US numbers and Fed meeting put some of that notion in doubt, causing yields to decline and the markets to price in the possibility of a rate cut by the Fed in March next year. But already this week's yields have bounced back higher, and the weakness we saw on USD looks set to be short lived – this is evident in the fact that both GBPUSD and EURUSD hit fresh 2-month highs and has been dropping since. We expect other Fed members to follow Kashkari’s hawkish views yesterday, and thus a continuation of treasury yields to climb higher, which ultimately supports the view that USD will be stronger.

Data this morning from the British Retail Consortium showed that like-for-like retail sales slid for the third consecutive month, highlighting a slowdown in consumer spending and thus a slower economy. For the rest of the day we have PPI numbers from Europe, and a deluge of speakers from the Fed.

Chart of the day

Neel Kashkari led the charge in pushing back against the expectations of an early rate cut next year, attempting to keep the Fed mantra of ‘higher for longer’ alive. Yields on US treasuries have bounced after the lows on Friday, and we have a barrage of Fed speak today - if Kashkari’s sentiment is repeated today then we would expect further gains on yields and thus USD.

Source: Bloomberg Finance L.P.

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