Powell testimony leads market open

What’s happened in the markets?

The dollar index hit the highest levels in three months at 105.5 as Federal Reserve Chair Jerome Powell offered a more hawkish outlook on monetary policy than markets anticipated. Therefore, markets are now priced for a 74% chance of a 50 basis point rate hike in March, according to CME’s FedWatch tool, up from a 30% chance a day ago.

WTI crude futures held below $78 per barrel on Wednesday after losing 3.6% in the previous session. OPEC Secretary-General Haitham Al-Ghais also said that slowing oil consumption in Europe and the US could threaten the market.

What to watch?

Fed Chair Powell in his testimony remarks if incoming data indicates faster tightening is required, the Fed is prepared to increase the pace of rate hikes, warning that the ultimate level of interest rates is likely to be higher than previously anticipated, this could be a signal that March dot plot could see a bullish shift. Powell also noted that the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. This opened the door to a 50bps rate hike in March and market pricing has shifted more in favor of a bigger hike on March 22 meeting. Terminal rate expectations have shifted higher to 5.63% from 5.48% previously. Therefore, the second day of the Powell testimony may lead the market today.