Last week's surprising jobs report sticky inflation, and persistent and frothy financial conditions may force the Federal Reserve members into a more hawkish position, forcing them to keep the heat on interest rates and the money supply.
Many market participants were looking for a pause in rate hikes as soon as next month and possibly a pivot to lowering rates shortly after. This new data is going against what the Fed was trying to accomplish in this rate hike cycle, which is
to keep inflation within mandated guidelines, and to tame loose financial conditions, dashing the hopes for a pivot in policy anytime soon and pushing that pivot out for far longer than some were expecting. This will put upward pressure on bond yields and a dollar so heavily shorted causing the pivot crowd to close out some of their short positions as the Fed puts the screws to the money supply and inflation. This classic cup and handle setup illustrates the effect the Fed Policy may have on the dollar.
Many market participants were looking for a pause in rate hikes as soon as next month and possibly a pivot to lowering rates shortly after. This new data is going against what the Fed was trying to accomplish in this rate hike cycle, which is
to keep inflation within mandated guidelines, and to tame loose financial conditions, dashing the hopes for a pivot in policy anytime soon and pushing that pivot out for far longer than some were expecting. This will put upward pressure on bond yields and a dollar so heavily shorted causing the pivot crowd to close out some of their short positions as the Fed puts the screws to the money supply and inflation. This classic cup and handle setup illustrates the effect the Fed Policy may have on the dollar.