Summary:

• Greenback continues recovery after a somewhat hawkish message from the Fed yesterday.
• European stocks started the session higher as banks thrive on higher market rates.
• Norges Bank surprises a bit to the upside giving NOK a support.
• Draghi’s speech in focus in the afternoon.

This morning in Europe was benign so investors could digest the aftermath of the FED’s meeting yesterday. The US dollar kept most of its recent gains vs most of G10 currencies, although euro managed to bounce somewhat. Moreover, the Norges Bank surprised a bit to the upside giving NOK a support. On the stock markets, investors were in bullish moods as banks thrived on higher market rates.

 Greenback is broadly stronger as Federal Reserve stuck to its forecast of interest-rate later this year and communicated it’d start to shrink its balance sheet from October. It was a bit more than market participants had expected, thus US yields surged buttressing the US dollar and pushing gold lower – even below 1300 USD handle. USD gained the most vs. AUD, which came under pressure of slidning iron ore prices. On the flip side, euro managed to trim some of its losses against the buck awaiting comments from ECB’s Mario Draghi. Moreover, there was a BoJ’s meeting overnight, but by large it was a non-event for JPY. 

It’s worth mentioning that NOK reached its strongest level in more than a week after the Norges Bank indicated it could tighten monetary policy faster than previously anticipated. Nevertheless, the bank left the key interest rate unchanged today. We also got a Sweden’s Riksbank minutes. The central bank stressed it would be risky to tighten monetary policy over and above what market has priced in, but some members highlighted the risk of overheating the economy. This remark helped SEK to post moderate gains against USD and EUR. 

Even as the FED chose to stick to its plan to hike rates once again this year (December) it lowered its projected neutral rate which means that the whole path of monetary tightening is going to be shallower. Keep in mind, the lower discount rate, the higher present value of stocks. What’s more, current rebound in market rates supports banks shares. That’s why European equities were in the green this morning. At present CAC40 (FRA40) and EuroStoxx50 (EU50) are rising by more than 0.5%. On top of that, the DAX is adding 0.3%, while the FTSE100 (UK100) is flat. 

The key event of this afternoon is the speech of ECB’s Mario Draghi (2:30 pm BTS). As the recovery in Europe is gathering pace, traders will look to the ECB’s president for clues on the tapering the QE program ahead of the ECB’s October meeting. Nonetheless, the topic of today’s speech is systematic risk so he may not refer to monetary policy.