• Gold up $9 to $1672
  • US 10-year yields down 5.5 bps to 3.51%
  • WTI crude oil down 57-cents to $83.36
  • S&P 500 down 56 points to 3816
  • USD leads, EUR lags

The 75 basis point hike from the Fed was no surprise but the dot plot offered a more-hawkish path for rates than markets were anticipating and that led to a bid in the dollar and rout in equities.

It certainly wasn't a straight-forward trade as there was a reversal in Powell's press conference but the final move came after he finished and it matched the initial reaction. The new dots signaled 75 bps in October, another 50 in December and then one-or-two hikes in early 2023 and holding there for the year.

With the bid in the long end of the bond market afterwards and dump in equities, the market is signaling that a recession is growing more likely. Contrast that with the median forecast for +1.2% GDP next year from the Fed.

The session highs in the dollar came immediately after the FOMC release but we're not far from there now aside from USD/JPY, which is 60 pips lower in tracking long-end yields. Otherwise, it's multi-year extremes across the board.

All eyes are on EUR/USD as it breaks the September low and on cable at a 35-year low ahead of tomorrow's BOE decision.

In the bigger picture, these are pivotal US dollar levels and we're staring into a bit of a technical abyss from there. Europe is in tough shape and covid-zero in China is not promising. The Fed offers some token nods to data dependency but there's a reluctance to embrace signs of falling demand and -- in particular -- falling global demand.

We're getting to the point where the market may have to scream 'overshoot' until the Fed does something about it.

FX news Wrap Sept 21