20/09/2023 - 07:33 UTCThe U.S. dollar showed little to no change on Tuesday’s session, with the dollar index (USDX) up by 0.08% still trading right below its six-month high of 105.5. Investors remain on the sidelines, anticipating the outcome of the long-awaited September meeting where the Fed will most likely keep interest rates unchanged, according to CME Fedwatch tool, however investors will focus on statements from the press conference looking for hints regarding the ending of the rate hiking cycle. It should also be noted that with U.S. consumer inflation rising by 0.6% last month, posting the largest gain since June 2022, the Fed could possibly continue with further rate hikes in the near future.
Another important highlight for this week is the Bank of Japan meeting on Friday, where expectations say it could soon switch its easing policy of negative interest rates. Recent data showed the country’s exports and imports fell less than expected in August, however, its trade deficit widened substantially more than expected, hitting a three-month low on global demand slowing down and weakness in China.
Energy prices reversed their course on Tuesday, posting a mild correction after reaching highs last seen in November 2022 within the day. Brent and WTI ended the session with moderate losses of 0.17% and 0.42% respectively and continue to move further into negative territory early on Wednesday, ahead of the Federal Reserve meeting.
Wall street has been steadily losing ground since last Thursday partly due to a strong inflation reading last week that raised concerns that the Fed will maintain its hawkish stance for longer. On Tuesday the US 500 fell by 0.26%, the US 30 was down 0.36% and the US tech 100 posted a decline of 0.26%. Of particular interest for US stock markets is the slowdown in China, as companies with significant weightings such as Apple, Microsoft, Nvidia, Amazon, Alphabet, Tesla, and Meta Platforms earn more than 10% of their revenue from China.
Some more key releases are up on Wednesday, including the UK housing price index and the US crude oil inventories.
The EUR/USD pair posted losses of 0.10% on Tuesday as US Dollar strengthened amid a deterioration in market sentiment and higher US yields ahead of the Federal Reserve (Fed) decision.
The final reading of the Eurozone Harmonized Index of Consumer Price Index showed a revision in the annual rate from 5.3% in August to 5.2%, while the Core rate remained at 5.3%.
On the other hand, The Fed is expected to keep the Fed Fund rate steady at 5.25-5.50%. The statement and Chair Powell will likely reiterate that more tightening may be needed if inflation rebounds further or proves to be more resilient.
Gold prices hit a two-week high on Tuesday but did not manage to hold the gains and ended the session 0.14% lower.
The U.S. dollar was off last week’s highs, making gold less expensive for overseas buyers, ahead of key central bank policy decisions by the United States, Britain, and Japan over the week. While the Fed is overwhelmingly expected to keep rates unchanged when it announces its policy decision on Wednesday, centre of attention would be on their outlook for futures rates.
Oil prices rose to 10-month highs on Tuesday before easing, as market participants took profits following three sessions of gains that followed extended production cuts from Saudi Arabia and Russia. WTI contract on iForex platform ended the session 0.42% lower.
Industry data on Tuesday showed U.S. Crude oil stockpiles fell last week by about 5.25 million barrels, according to market sources citing American Petroleum Institute figures on Tuesday.
However, this rising trend in oil prices could pose challenges for the Federal Reserve and potential economic slowdowns in Europe and China.
Wall Street lost ground on Tuesday, with risk-off sentiment weighing as the U.S. Federal Reserve convened for its much-anticipated two-day monetary policy meeting.
All three indexes ended the session lower in a broad sell-off ahead of the Fed's interest rate announcement, which is expected to culminate in a decision to leave key interest rates unchanged. The US 500 and US 30 ended the session posting losses of 0.26% and 0.36% respectively, while US Tech 100 ended the session losing 0.26%.
Ahead in Wednesday’s trade, market participants will be expecting Federal Reserve policymaker to maintain interest rates at their current levels, while closely monitoring the FOMC statement and economic projections to gauge the future path of interest rates.
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