The post-Fed optimism is continuing to flow with equities holding higher to start European morning trade, with the dollar slightly on the lower side at the moment. Recent inflation data from the US has helped to vindicate the market outlook that we are moving closer to a Fed policy pivot and after yesterday, there is no suggestion to back down from that.
The Fed has already moved from 50 bps rate hikes to 25 bps now and with every few meetings, it seems like Powell is relenting and caving in to the market's outlook. The latest is his mention about "disinflation" and stating that "if inflation comes down much faster", it will play into their policy-setting.
That is all the market needs to hear and as long as the data continues to go down the same path as it has been in recent months, it will be tough for the Fed to maintain the set of caveats from yesterday. Powell said that he still believes that inflation will not come down as quickly as what market participants are hoping for but at this point, it's all about what the data says.
Until there is a change in the trend in inflation developments, risk trades will try and get away with anything they can grab their hands on at the moment. In terms of rates pricing, we're also seeing market players solidify a case for a rate cut by the end of 2023:
