AI optimism outweighs fears of a sharper Fed rate hike

what happened

US stocks rose, and Europe's STOXX 600 closed at a record high on Wednesday. Support came from an upbeat AI outlook by neocloud firm CoreWeave, whose shares jumped 20%, and a rebound in Nvidia. The rally outweighed worries that the Fed could deliver a 50-basis-point hike next month, after Governor Chris Waller put that option on the table on Tuesday.

The dollar strengthened, with the dollar index reaching its highest level since April last year and running 5% above where it stood only a couple of months ago. The euro fell to a 19-month low, and dollar/yen neared 160, a level widely seen as intervention territory for Japanese authorities. Gold dropped 1% to below $4,000 an ounce. According to Reuters columnist Jamie McGeever, there has been no verbal intervention from Tokyo or Washington so far.

why it matters

Markets are taking the prospect of tighter Fed policy in stride for now, but that calm may not last if a 50 bp hike in December looks likely. The mixed signals from the central bank make the outlook harder to read for investors.

market impact

Dollar and yen: expectations of tighter Fed policy support USD and weigh on the euro, yen and gold

• ▲US dollar pressure up — a possible Fed rate hike increases demand for the currency
• ▼Euro pressure down — the interest rate gap shifts in favor of the dollar
• ▼Gold pressure down — a stronger dollar and rising yields pressure the metal

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