Markets Buckle Under Intense Volatility Last Week as Fed’s Plan Becomes Clear

Intense volatility was the order of the day in the markets last week, especially in the cryptocurrency market. The equities sector recorded a sharp decline but staged a last-minute rebound. Meanwhile, gold and silver maintained a downward streak amid the intense volatility.

In the forex market, the Japanese yen emerged as the best performer last week, thanks to the heightened risk-averse mood in the market and a pullback in benchmark Treasury yields. However, analysts expect the yen to experience counter forces and fall into a sideways pattern in the near term, as market sentiment appears to have stabilized following the recent clear communications from the US Fed.

The Canadian dollar and US dollar were the second-best performers after the yen last week. The euro, Swiss franc, and Kiwi all recorded poor performances last week. However, the Australian dollar recorded the worst performance of them all. That said, the Kiwi and Aussie could record a slowdown in bearish sentiment in the coming weekly session as the prospects of a recovery in risk assets soar.

Meanwhile, the euro seems to look more vulnerable, with many analysts expecting the single currency to inevitably drop below 1.0340, its lowest point since 2017 against the USD, in the near term.

Last week’s volatility extended across most financial markets, from risky markets like crypto and stocks to safer markets like bonds and commodities. That said, developments towards the end of the week suggested that some near-term stabilization could emerge.

Markets to Rebound on Clear Fed Outlook

The markets are clear on the notion that the Fed plans to raise rates by an additional 50 basis points (bps) in its June meeting, at least until its outlook changes. Already, Fed funds futures have priced in an 82.5% chance of a 50 bps rate hike in June to send the interest rate from 1.25% to 1.50%, and an 86.7% chance of another 50 bps rate hike in July.

With more clarity on the Fed’s interest rate plans, we can anticipate a strong bounce and recovery of losses in the markets, especially the US stocks market, over the coming weeks.