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Bank of Canada Slows Rate Hikes; Fed Policy Decision in the News

Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
The Bank of Canada surprised the market by raising interest rates by only 50 basis points instead of the 75 basis points expected.

US stocks rose after recent economic data showed a clear slowdown in the economy and a lower-than-expected interest rate hike by the Bank of Canada fueled hopes that the Federal Reserve's rate-hiking cycle would soon come to an end.  

The Bank of Canada surprised the market by raising interest rates by only 50 basis points instead of the 75 basis points expected. This raise hopes that the Federal Reserve will change course and implement less aggressive rate hikes.  

In fact, US Treasury bond yields fell significantly, with the 10-year bond falling into the 4% range after recently rebounding to 4.34%. 

Earnings season is also having a positive impact on market risk sentiment. With a few exceptions, such as Google, which disappointed the market with lower-than-expected revenue and earnings per share, roughly 75% of S&P500 stocks have outperformed market expectations thus far. 

Market sentiment had been very negative before the earnings release, with the general idea that both the economic slowdown and inflation and higher interest rates would negatively affect business results. However, it is being shown that those expectations were incorrect, and the stock markets are reacting very positively. Add to this the perception that the Fed is most likely nearing the end of rate hikes, and market risk appetite is growing by the day. 

Something that is also being noticed in the foreign exchange market is the US dollar losing ground after a full year of continuous increases. 

The pressures for the Federal Reserve to back down on its intentions to take interest rates to excessively high levels are diverse. Moreover, it has even been known that the Banking Committee of the US Senate has expressed concern to President Powell in writing about a monetary policy that is too strict, risking a recession and raising the unemployment rate to unfavorable levels. 

Wall St indices experienced another day of gains above 1%, with the DowJones 30 approaching the 32,700 area, above which, from a technical perspective, it would gain momentum and end the latest downtrend.   

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Sources: Bloomberg, Reuters 






Miguel A. Rodriguez
Miguel A. Rodriguez

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.