What a difference 24 hours make. Just yesterday, markets were increasingly convinced that the Fed will push for a 100 bps rate hike in two weeks' time and all of a sudden after remarks from Waller and Bullard, we're back to thinking 75 bps instead.
As things stand, dollar sentiment in the short-term and run up to the FOMC meeting will hinge mostly on market pricing on what the Fed will do. The wild swings yesterday offer up a taste of how policymakers can dictate the state of play and they are pushing the narrative to economic data in the week ahead.
All of that will start with today's US retail sales data before a couple of housing numbers through Monday to Wednesday. At least that is what Waller is alluding to with his comments here.
Nonetheless, USD/JPY stayed buoyed and is keeping close to 139.00 while EUR/USD averted a daily close below parity but remains vulnerable near the key psychological level. USD/CAD while seeing gains pared back somewhat, still managed a daily close and technical break above resistance around 1.3076-83. The pair is now trading little changed at 1.3105 on the day.
But perhaps one of the bigger swings was in the bond market, with 2-year Treasury yields significantly erasing its climb at the start of US trading yesterday:
The question now is whether or not this is the start of some form of pivot by the Fed to be less aggressive on rate hikes. I still sense that the market isn't buying that just yet but it is something worth watching when policymakers start to worry about "overdoing" rate hikes.
For today, all eyes will be on the US retail sales data. It is going to be a big one before the weekend.