US Federal Reserve

Advice that the Fed should consider ending its rate hiking cycle "is badly misguided" says Larry Summers.

The Pound to Dollar exchange rate remained buoyant near the week's highs after the Federal Reserve's (Fed) preferred measure of inflation underwhelmed expectations and did nothing to persuade the market into bidding afresh for the greenback ahead of next Wednesday's interest rate decision. 

The Pound to Dollar exchange rate surged into the London close on Friday amid a spectacular rally from the Japanese Yen that appeared to drive a market-wide slump in Dollar exchange rates and was followed by reports of direct intervention from the government in Tokyo and Bank of Japan (BoJ).

The Euro did better than many others even as it fell to an October low against the Dollar after official data showed U.S. inflation accelerating further in September, inciting a sharp rally in government bond yields and bringing Federal Reserve (Fed) interest rate policy back into focus for the market. 

The Federal Reserve (Fed) has an expanded array of tools with which it could fix fractures in the financial system should its interest rate policy lead things to break and the mere existence of some of those tools has likely already acted as a stabilising force, according to Governor Christopher Waller. 

The Pound to Dollar rate climbed back above 1.14 to extend a six-day recovery as U.S. exchange rates eased across the board following the release of data suggesting the number of U.S. job vacancies fell sharply in August. 

U.S. interest rates were raised by three quarters of a percentage point for a third consecutive occasion in September while the Federal Reserve (Fed) also lifted its forecasts to suggest that significant further increases are still likely up ahead, with the Fed Funds rate seen rising above 4.5% at some time next year.

The Pound rallied as the Dollar slipped from new highs ahead of the weekend and after a University of Michigan (UoM) survey suggested U.S. consumers' expectations of short and medium-term inflation ebbed in September, although that might not be the most important detail of the survey.

 

The U.S. Dollar rally of 2022 may be in its final throes and in part because there's a risk of either a Volckerian Federal Reserve (Fed) decision next Wednesday or of a market disappointment with the outcome, and each could be enough to see 2022’s Dollar rush turning into a great U.S. Dollar flush. 

The Japanese Yen was slipping again in the penultimate session of the week but recent speculation about the prospect of direct intervention by the Bank of Japan (BoJ) to support the currency is not the only reason why the Yen may already have bottomed and could be on the cusp of a spectacular recovery. 

The latest data have vanquished hopes that U.S. inflation may be easing and are widely expected to have caused concern at the Federal Reserve barely a week out from September's interest rate decision, leading many analysts and economists to anticipate some of the strongest action yet from the Fed.

The Euro to Dollar rate sustained heavy losses after sharp increases in some U.S. inflation rates took the market by surprise but its earlier recovery from two-decade lows may have been merely delayed, rather than derailed, and in part because of the evolving Federal Reserve (Fed) policy outlook. 

The Japanese Yen's annual loss reached extreme levels at times this week, drawing increasingly stern protests from the Ministry of Finance, but there is a danger that market speculators driving this are unwittingly engaging themselves in a game of Russian roulette with lots of loaded chambers in the pistol. 

U.S. inflation has fallen lately but remains far too high for the Federal Reserve and with companies long overlooking its concerns when setting prices, the bank now appears to be reaching for its ‘Feddie Krueger’ mask and so there may be some risk of a Volckerian fright night for global markets on September 21.  

Dollar exchange rates fell during a keenly anticipated speech from Federal Reserve Chairman Jerome Powell on Friday but were quick to recover and place other currencies on the back foot as financial markets contemplated what his remarks could mean for the U.S. economy and interest rate outlook.  

The Pound to Dollar rate rallied briefly on Friday but was quick to give up its gains after Federal Reserve Chairman Jerome Powell said that companies and households will face a growing struggle as the bank lifts its interest rate further in an effort to bring down U.S. inflation.

The Federal Reserve’s preferred measure of U.S. inflation surprised on the lower side of economist expectations for July on Friday, echoing the official figures released earlier in August, although Fed officials have indicated that this is not enough to alter the path of U.S. interest rates up ahead.

Multiple pieces of recent economic data have offered early signs that U.S. inflation pressures may be moderating but minutes of July’s Federal Reserve monetary policy meeting make clear that these are unlikely to keep hawkish Fed officials from lifting interest rates to restrictive levels this year.

Federal Reserve Bank of San Francisco President Mary Daly said twice this week that bond markets are mispricing the outlook for U.S. interest rates and implied that a reset of expectations could be in store for the months ahead, which would have possible implications for the Dollar and other currencies. 

Dollar exchange rates were on course for a second consecutive decline in the final session of the week after the Federal Reserve (Fed) said that U.S. economic data will influence the remainder of its interest rate cycle and official figures showed the economy teetering on the edge of recession.