Thread by @options_insight

0/ Powell and his Fed colleagues keep getting more and more hawkish and rates have really taken off this week, but the S&P seems to keep staying strong - what is going on?

Find out with this week’s FX & Rates Roundup 🧵👇

1/ DXY pulled back post-FOMC after hitting top of channel close to 100. Market is pricing around 8 more hikes this year, so why isn't USD rallying? It's actually typical to see some dollar weakness at the start of a tightening cycle if we zoom out and look back to 90s.

2/ USDJPY continues to rally after a massive breakout above 116.5 (5 year highs) as Kuroda stays put on rates whilst Powell gives a very hawkish message to markets.

3/ EM FX rallies hard vs USD as commodity exporting economies benefit from recent prices spike on Russia/Ukraine. CAD, ZAR, MXN, NOK, AUD & BRL all up between 1 and 5% against dollar in a week.

4/ In rates, US 2Y yields continue gapping higher after Powell confirm 50bps hike in play for next meeting. Market implied probabilities favouring 50bps in both May and June meetings! Can the market digest this without stocks puking?

5/ Flattening trend continues as we now see curve inversion in a few places on the curve. 2s10s around 20bps so not quite there yet but many people suggesting we get there by summer and countdown to recession begins. 20Y auction was well bid today ahead of QE rebalancing.

6/ For an in-depth discussion on FED and rates watch this great interview from @JackFarley96 at @Blockworks_ speaking to @FedGuy12 & @NickTimiraos

7/ Financial conditions actually loosened last week due to stocks rallying. This is the conundrum the FED finds itself in right now where the need to crash the stock market for their policy to actually work and financial conditions to tighten enough to bring down inflation.

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