Proactive Investors - The New Zealand dollar is the mover and shaker this morning after its central bank hiked rates, leading to gains above 0.5% against the Japanese yen, pound sterling, US and Canadian dollars and Swiss franc, with 0.3% rises versus the euro and Aussie dollar.
Policymakers at the Reserve Bank of New Zealand earlier today raised rates by 75 basis points, pretty much as predicted, taking its cumulative hikes to four full percentage points since October last year, and squawked hawkish.
RBNZ policymakers signalled they may take rates to 5.5% and that the economy will enter a recession, with a bigger contraction of the housing market than previously expected.
Dollar
The US dollar meanwhile continued to soften against the euro, while sterling and the yen both took a breather.
On Wednesday morning, cable was up less than 0.05% at 1.1885, EURUSD was up 0.3% at 1.0333 and USDJPY up less than 0.05% at 141.20.
Traders thoughts are still fixated on what the next few moves will be in the global tightening of interest rates and other monetary policy, while many analysts cited China’s Covid, regulatory and foreign policies as other important factors in general market sentiment.
Elsewhere today, the dollar will be in focus as eyes turn to minutes from the latest Federal Reserve policy meeting, seen as the week’s big risk event before the Thanksgiving holiday break tomorrow.
With the last FOMC meeting seeing policymakers ready to break their streak of 75bps hikes with a step down to a 50bps hike in December, traders will scrutinise the minutes for terms relating to this, the “higher for longer” plan and comments about inflation’s stickiness.
Fed chair Jerome Powell in his comments after the last rate decision linked the stepdown in rate hikes to a potentially higher terminal or peak interest rate.
As a result, Jim Reid at Deutsche Bank (ETR:DBKGn) said, "we’ll be looking for any indication that the rest of the Committee agrees, and if so, how much higher terminal may need to go to restrict financial conditions adequately".
Analysts at ING Bank said: "Expect another rally in risk assets should the minutes provide hints of conditionality of Powell’s post-meeting hawkishness to a prolonged stickiness in inflation readings, which markets are now more convinced will not materialise after the latest CPI reading.
"In the absence of such hints, there may not be much for risk bulls to cling on to, given that the November meeting was still a largely hawkish one and the post-meeting (and also post-CPI) Fedspeak has been rather cautious on a dovish pivot."
Craig Erlam at Oanda said he wonders what exactly markets expect to learn from the minutes that isn't already evident from the decision, statement, press conference, and flurry of central bank commentary since the event took place.
"Often it's not the substance of the minutes but the subtle changes that investors get carried away with," he said. "The dovish pivot that may or may not have actually been has been the focus in recent weeks, with Fed commentary since not exactly clearing anything up. Investors may be on the hunt for clues that they've acted prematurely, or that there's actually more support for such a slowdown in tightening and less for a higher terminal rate than they previously thought."
Pound
For GBP, there could be some impetus from the flash PMI survey data released today.
The market is looking for a further deterioration in both the manufacturing PMI and composite gauge, possibly due to the prospect of austerity measures by new PM Rishi Sunak and chancellor Jeremy Hunt.
Hunt will also be testifying later before the Treasury Committee about last week's fiscal statement.