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Fed remains dovish

Fed Chair Powell’s Semiannual Monetary Policy Report affirmed the Fed’s dovish commitment for the next couple of years and did not push back on the recent surge with rates.  Powell broke out his best hits: The US economy is a long way from our employment and inflation goals.  Developments point to an improved outlook for later this year.  Ongoing progress in vaccinations should help speed the return to normal activities.

During the Q/A portion

Powell was if we have an increase in bond yields and inflation but are not yet back at full employment, what would that mean for the bond buying program?  Powell reiterated the bond buying will remain in place and until substantial further progress has been made, which has not happened in the past three months.  Powell did not give a hint of worry over the surge in bond yields and maintained the stance the inflation will be temporary.  Treasury yields fell to the session lows after Powell noted they have the tools to deal with unwanted inflation.

FX

The bearish dollar thesis was confirmed today as currency traders become more comfortable that a repeat of the 2013 tantrum won’t happen.  This time is different and unlike in 2013, China is entering a position of strength and not weakness.  The Fed is not moving anytime soon, but currency wars may complicate how the dollar trades.  ECB Chief Lagarde noted yesterday that the ECB is “closely monitoring” the market for government bonds.  If the global bond yield continues, central banks across the board will do their best to mitigate the negative implication to a significant steepening of their respective curves.

Bitcoin/Ethereum

Bitcoin’s plunge into bear market territory and Ethereum’s 50% crash on the Kraken exchange triggered a tsunami of panic selling for many crypto traders.  Ethereum’s flash crash on Kraken was not replicated across the other major cryptocurrency platforms and will likely trigger some reshuffling on where traders hold their cryptos.  Bitcoin pressure stemmed from a steady flow of negative talk from Peter Schiff and Treasury Secretary Janet Yellen.  Adding to the woes in the cryptoverse is the continued risk-off tone on Wall Street.  Bitcoin will likely see some diehard loyalist scale into this dip, but buyer beware if the hedge funds want to take this a lot lower.

By Ed Moya