The market does not believe Powell, the blackout period

The EUR/USD rate set new local lows on Friday and fell to around 1,0830 and then rebounded to 1,0890, as a result of Chairman Powell's words. Wallstreet indices ended the day on a positive note.

Gold on Friday equaled historical highs and tonight the prices shot up towards USD 2140 with great momentum. This recent upward move is now being reduced. We had an excellent opening of the new month on the WSE. Wig20 gained nearly 3,2 percent.

Has the fight against inflation been won?

Powell's statements on Friday were much more ambiguous than those of Christopher Waller, who earlier this week signaled that the fight against inflation was almost won. Powell's comments, in fact left the prospect of further interest rate increases – which few on the market believe. The market valuation after Friday's comments even more strongly indicates the possibility of reductions in the cost of money in the US. At the moment, the probability of such a move in May is slightly over 70 percent, while the chance of a reduction in June is approaching 80 percent.

Powell, however, did not say anything more hawkish, and the market basically heard the same words as last time. The market to some extent expected to receive something extra from Powell, especially after recent "dovish" comments from other Fed representatives. It has been signaled another pause in December and the issue of caution in further action was repeated many times. Powell will diplomatically repeat that further monetary tightening is possible, but the market does not believe in it at this point.

Meanwhile, Chicago Fed President Austan Goolsbee said U.S. inflation was still on track to return to 2%, praising the latest data that showed a easing in price pressures. He said there was “no evidence that we are stuck at 3%.

The 'blackout' period is ahead of us

On Friday, US bond yields fell again. 10-year bonds fell 14 basis points to a ceiling of 4,54%. and throughout last week they decreased by 41 bp.

A blackout period for next week's meeting now begins, which means we won't receive any comments from the Fed on monetary policy. The attention will shift back to the macro in question. Next Friday, the market will assess the situation on the American labor market (NFP report). However, the data would have to be really great if the topic of another rate increase were to come back. The market is currently waiting increase in employment change in the non-agricultural sector to 170 thousand. and the unemployment rate remaining at 3,9%.

EUR / USD suffered a rather sharp decline on Friday after the governor of the Bank of France, Francois Villeroy de Galhau, said that unless there were shocks, the ECB tightening cycle has come to an end and that the ECB will consider easing in 2024. Money markets are pricing in the ECB's first full rate cut in April next year - slightly earlier than the Fed.

This morning, the rate of the main currency pair is 1,0870, gold is falling to 2064 after a previous strong move to approximately USD 2140. The zloty is losing slightly. EUR/PLN rates rise to 4,3350 and USD/PLN to 3,9870. DAX gains 0,07 percent and WIG20 is close to the opening level.

Source: Łukasz Zembik, OANDA TMS Brokers