MARKET UPDATE

Dollar Edges Lower; Looming Fed Decision Limits Volatility

The U.S. dollar edged lower in early European trade Wednesday, with traders cautious ahead of the conclusion of a crucial Federal Reserve meeting.

At 04:00 ET (08:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 111.225, not far below Tuesday’s high of 111.78, the strongest level since Oct. 25.

The Fed is widely expected to deliver another 75 basis point rate hike later Wednesday, its fourth such increase in a row. But the market is split over the size of December’s hike, particularly after recent suggestions from Fed officials of a potential slowdown in the tightening pace.

That said, the central bank could easily stick to its aggressive tightening path for rates as a result of the still-tight labour market and lack of any signs of an easing in core inflation.

 

Oil prices up on demand hopes after U.S. crude stocks drawdown

Oil prices rose on Wednesday after industry data showed a surprise drop in U.S. crude stocks, suggesting demand is holding up despite steep interest rate hikes dampening global growth.

Brent crude rose 54 cents, or 0.6%, to $95.19 a barrel by 0723 GMT, while U.S. West Texas Intermediate (WTI) crude rose 72 cents, or 0.8%, to $89.09 a barrel.

The benchmarks rose about 2% in the previous session on a weaker U.S. dollar and after an unverified note trending on social media said the Chinese government was going to consider ways to relax COVID-19 rules from March 2023, potentially boosting demand in the world’s No.2 oil user.

In a further positive sign for demand, U.S. crude oil stocks fell by about 6.5 million barrels for the week ended Oct. 28, according to market sources citing American Petroleum Institute figures. [API/S]

Eight analysts polled by Reuters had on average expected crude inventories to rise by 400,000 barrels.

 

Central banks ease off on rate hike push in October

The pace and scale of rate hikes delivered by central banks around the globe in October slowed down dramatically following September’s historic peak.

Central banks overseeing four of the 10 most heavily traded currencies delivered 200 basis points of rate hikes between them last month, while the remaining ones held rates. Policy makers at the European Central Bank, the Reserve Bank of Australia, the Reserve Bank of New Zealand and the Bank of Canada raised lending rates.

By comparison, eight of the same 10 central banks raised rates by a combined total of 550 bps in September, the fastest pace of tightening in at least two decades.

The latest moves have brought total rate hikes in 2022 from G10 central banks to 2,050 bps.

“The pace of central bank tightening has likely peaked,” said Marko Kolanovic at JPMorgan (NYSE:JPM) in a note to clients.

“More dovish rhetoric from the ECB, BoC, Fed and RBA recently indicate the pace of central bank tightening is likely to slow in the coming months, though it is early to assess whether this means a lower terminal rate.”

 

 

 

 

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