Although the FOMC minutes offered up little newnews on the policy front, the marketsure likes the unified FED's very optimistic and balanced tone of more growth and transitory inflation. And it keeps US investors in the candy store modewhile feeding off the infrastructure stimulus sugar rush. After all, the US economy is following a much stronger path than had previously been expected and still to be supported by an easy money policy.
The Fed has been here before, perhaps most notably with the aborted lift-off of 2015placing too much emphasis on what it expected to happen (growth) and not enough attention on what was actually happening (slowdown). A cautionary tone on the policy front is whole warranted, even if the market will soon stop believing it as that same stronger path than had previously been expected would implyearlier rate lift-off than previously anticipated.
Indeed,price action is likely to be of the “two steps up, one step back“ variety as the rates debate continues to unfold through 2021-22
Still, the short term momentum appears to remain in favour of the bulls as investors seem happy and willing to bet on an economic rebound over the coming months in light of the robust data in recent week. And on top of all that, equity volatility continued to remain tepid around its lowest levels since the pandemic began, encouraging risk-taking.
Sterling Under Pressure
GBP/USD has been notably offered since touching the 1.3915-20 highs on Tuesday and appeared somewhat flow-driven. A combination of factors weighs on sterling as arguably a lot of the recent good news is priced in. At the same time, concerns emerge regarding potential links to side effects from the UK's vaccination workhorse.