Euro Forex Market Strengthens as Fed Turns Hawkish

• Dollar Stabilizing on Powell Turnaround
• Yields Dip Again as Omicron Dominates News
• Rollercoaster Week for Markets on Wall Street

The forex market moves to the middle of the week on reasonably stable ground. This comes largely on the back of comments from Federal Reserve Chief Jerome Powell on Tuesday. These signaled a more hawkish approach from the Fed to combat inflationary pressures even as the latest COVID-19 variant takes over the headlines. Omicron has created widespread uncertainty in markets and impacted the US Treasury Yield which has dipped again in early trading. It has also been an unpredictable week on Wall Street with stocks seeing major dips followed by next-day rallies.

Fed Surprises in Change of Strategy

Throughout the pandemic period, those forex trading have become well accustomed to a very supportive approach from the Federal Reserve. This dovish take has had no more ardent supporters than the Chief himself in Jerome Powell. Despite criticism from other policymakers, the view that inflation remained “transitory” was held firm. 

This term has now been “retired” according to remarks made yesterday by Powell to the US Senate Banking Committee. The move, according to analysts, has greatly increased the chances of a Fed rate hike in the next 6 months. The US Dollar has weakened in response and opened the door for the Euro which traded above 1.135 at the time of writing. 

Virus Variant Continues to Disrupt

Ahead of important US data to come later in the day including ISM Manufacturing PMIs, the US 10-year treasury yield has again moved below 1.5%. Just like many markets at forex brokers and beyond, the treasury yield has experienced a turbulent week. The move lower also serves to weigh down the Dollar and any upside from the currency.

The Omicron variant remains the key factor at play in these movements. While the US has resisted any further restrictions beyond barring travel from certain African countries, the virus offshoot has been steadily making its way around Europe. Cases have today emerged in the UK and Ireland with governments considering how to tackle this latest wave. 

Unpredictable Week on Wall Street Continues

It has also been a week of turmoil on Wall Street. Stocks sold off strongly when news of Omicron first came out. This was followed by a rally to start the week but another broad sell-off yesterday. Having lost more than 600 points in the previous session, the Dow Jones futures are looking very positive for Wednesday along with the other major indices. The S&P 500 and NASDAQ  are both boasting pre-market gains of close to 1.5%. 

What remains uncertain is how the Fed change of approach will impact the street. A more hawkish approach is exactly the opposite of the support that benefited the market previously in virus hit times. With the transitory inflation narrative a thing of the past, it could now make for a more challenging environment for those trading stocks.