Last week saw a full docket for Central Banks, with the Federal Reserve raising rates, the ECB Tapering QE, and as expected the Bank of Japan leaving policy alone. The greenback saw significant gains during the week; against the euro, it trades stronger by 1.53% and 1.08% against the yen. The greenback's value is positioning to rise further with expectations of more rate hikes from the Federal Reserve later in the year, Chair Powell signaling to market participants that inflation is on the rise as energy prices climb.
In other news, US President, Donald Trump and North Korean President, Kim Jong-un’s Singaporean summit made headlines around the world and lifted risk appetite in the markets. Although the meeting was short on ink-to-paper commitments, it seems to have opened doors to more friendly and open dialogue between the countries going forward, possibly laying the path to a denuclearized Korean peninsula at some point in the future. Although Kim is unlikely to lay down his nukes anytime soon the fact that the two leaders met at all is progress and further talks, possibly in Washington, could be on the horizon before the end of the year.
Mid-week, focus was centered firmly on the Fed, as it raised interest rates to 2% which saw the USD rally across the board. The US economy has remained healthy which has led to the central bank shifting to a more hawkish outlook and moving away from their crisis-era guidance. Markets will now expect a further two rate hikes in 2018 and three more in 2019 with the probability of a September hike now sitting just above 80%. The Fed also revealed they are not overly concerned with inflationary pressures to the US economy as they state they are content with having inflation remain over the 2% target until 2020.
To end the week, and after the ongoing "Trade War" President Trump administration approved the 50 billion in tariffs on Chinese goods, with expectations are that the technology sector will be hit the most. The markets instantly reacted, with investors taking a risk-averse approach and flocking to safe-haven currencies. The USD rallied sharply to end Friday's session, and on the flip side of the coin, the DOW slipped roughly 250 points on the back of the approvals. What will next week hold?