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Market Update

A hawkish Fed, volatile U.S. economy, and strong U.S. dollar

May 31, 2022
  • Authors

    Matt Moran


    Corporates | Kennett Square, PA


Across interest rate, equity, and commodity asset classes, the U.S. continued its rollercoaster of volatility. Despite this, the Fed attempted to soothe market participants with prospects of tightened monetary policy. Globally, the U.S. retained its position as the haven currency.

Interest rates, equities, and the U.S. economy

While the Fed funds target rate jumped half a percent after the FOMC’s meeting in early May, the FOMC minutes released on Wednesday gave the market more food for thought. In the most recent minutes, the Fed indicated that additional 50 basis point hikes “would likely be appropriate at the next couple of meetings," exceeding market expectations of tapering policies.

Despite the hawkish news, 2 and 10-year treasuries sank almost 15bps for most of the week after reacting to tough news of equity sell-offs and economic indicators but rebounded to levels seen on Monday by the week’s end. In the volatile equity market, Tuesday reversed Monday’s strong gains in a chain reaction precipitated by Snap’s weak Q2 earnings estimate. Markets also reacted poorly to U.S. economic indicators released last week, such as the increasingly tight housing market; new single-family home sales plummeted from 709k in March to 591k in April as buyers were priced out. Yet, by Friday, the S&P 500 still managed to snap Tuesday’s dip and the losing streak from the week before, climbing 6% by the end of the week. Even though equity markets gained tremendously this past week, the S&P 500 was down roughly 13% YTD as of Friday.

Foreign exchange markets

Dollar strength slipped last week but has maintained strong levels throughout May. The U.S. Dollar Index (DXY) fell from its recent high of roughly 105 in early May to roughly 102 as of this Friday. Despite this, strong Fed rate hike expectations, coupled with comparatively accommodative central bank policies abroad, led investors to seek the U.S. dollar as a haven — bank projections through 2022 remain bullish on the dollar as well. Because of these large central bank interest rate differentials, cross-currency swaps have become attractive derivatives for hedging FX risk, due to the coupon pickup and consequent reduction in interest expense these instruments can provide.

(Related insight: Download, "Cross-currency swaps: An in-depth guide for corporates")

Commodity markets

In recent times, the only constant across commodities is change. Natural Gas, being no exception, surged above $9 for the first time since 2008. Although some commodities have climbed down from their peaks, many remain incredibly volatile. With exorbitant commodity prices, backwardation in commodity forward curves has become a common trend. While hedging at these price and volatility levels may not always be attractive for corporations, many are focusing on hedging readiness to ensure they are not delayed if markets present attractive levels.

(Related insight: Read, "5 lies corporates tell themselves about commodity risk")

The week ahead

Expect continuing volatility across all asset classes next week. On Friday, keep an eye out for the Bureau of Labor Statistics releases of May’s unemployment rate, and change in nonfarm payrolls.

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About the author


Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.