Would you believe there was one word that turned around the trading day?.
I was out of the office when the Fed announced its rate decision and Fed Chair Powell held a press conference.
When I returned I took a double take at the reaction (bond yields down, stocks up, dollar down) asa there appeared to be no surprises.
So I put on my detective cap to decipher what had occurred.
I clicked on my Reuters app and scanned the headlines for clues. At first glance the headlines did not suggest a dovish reaction…
Fed in no rush to cut rates amid high uncertainty about Trump tariffs
Tariffs to delay inflation progress, too soon to gauge impact, Fed’s Powell says
Fed policymakers project two rate cuts this year, some see fewer
And then there was one word that changed the game
Markets soar as Powell brings back ‘transitory’
Transitory’ is back as the Fed doesn’t expect tariffs to have long-lasting inflation impacts (CNBC)
EURUSD reaction (up) to Powell’s comment
There one word that changed trading on this day
Markets jumped on Powell’s comments that inflation driven by tariffs will prove to be “transitory” and mainly confined to this year.
Whether this proves to be an accurate assessment is irrelevant. As the old trading adage goes, it is not the news but the reaction to news that matters.
The moral if this story is that words matter, especially in a trading world where news trading algos react first and then it is left up to traders to assess the news after. In the end, actions speak louder than words but ignoring the latter runs a peril for anyone trading.
Post-mortem
The same EURUSD chart the day after
As this turned out, it was a one day wonder as the next day saw the dollar more than reverse its post-FOMC losses, stocks have had a choppy day while bond yields extended its fall but has come back to unchanged on the day. .
While the price action is for a different discussion, you can see why words matter. As the old trading adage goes, markets can stay irrational longer then you can remain solvent.
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