Stocks fizzle, dollar higher alongside yields, Turkish lira and Brazilian real surges after rate hikes, GBP sinks on dovish BOE, bitcoin steady

Dollar rallies as US yields move higher

The day after the FOMC policy decision has bond traders in agreement that the front end of the curve will be anchored, and the long end is free to soar.  The playbook on Wall Street over the next couple of months will be to ride the reopening of the economy and double down on the cyclical rotation trade.  The US is still early in this economic expansion and with financial conditions still looking healthy, stocks should still rally in the short-term.

US stocks are pulling back some as markets reprice inflation risks, with the Nasdaq bearing the brunt of the losses.  Volatility will remain high over the next few months, especially as technology stocks struggle with their extreme valuations.

The dollar is rallying as Treasury yields easily break past some key technical barriers.  The 10-year Treasury yield touching 1.75% suggests that 2.00% might not take much longer to happen.

BRL

Brazil’s central bank went big with its interest rate hike, paving the way for the rest of the emerging markets.  The Brazilian real surged following the 75-basis point increase to the Selic target rate.  These rate hikes come at a terrible time as economic uncertainty will not go away for Brazil until the COVID spread comes under control.  Brazil is shattering COVID records with over 90,000 new cases of COVID-19 in a single day.

The BCB is worried about inflation and more interest rates hikes should be expected, with another 75-basis point increase likely to happen at the May meeting.

TRY

The Turkish lira surged after the central bank raised interest rates more than expected, a move that will draw the attention of many currency traders.  The interest rate differentials for Turkey are outstanding, the policy rate is now at 19% and since the lira has been battered since mid-February, long lira bets could grow.

BOE

The British pound softened after dovish hints from the BOE signaled that taper talks are nowhere near.  The BOE noted that there is a material degree of spare capacity at present and that the outlook for the economy remains unusually uncertain.  The BOE stance on tightening sounded similar to the Fed, both will require clear evidence of the recovery.

The BOE is waiting for the bond market selloff to intensify before they push back, just like the Fed.  Increasing asset purchases are not quite yet on their radar, but that could change if bond yields continue to skyrocket.

Bitcoin

Bitcoin is taking a backseat to a plethora of major moves across Wall Street.  A consolidation phase recently has been very positive for bitcoin and that could be the case right now.  Bitcoin fundamentals have been relatively upbeat, with the biggest concerns remaining regulatory fears.  Bitcoin appears poised to consolidate just south of the USD60,000 level, but if the move in the long end of Treasury gets out of control that could trigger some selling pressure.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya