21/09/2023 - 07:57 UTCThe U.S. dollar posted moderate gains on Wednesday’s session, with the dollar index (USDX) up by 0.21% closing in on the six-month high of 105.54 seen last week. The Fed held interest rates unchanged as anticipated on Wednesday and projected an increase by year-end, saying monetary policy is likely to be significantly tighter through 2024 than previously thought. According to Fed officials, as inflation slows for the rest of 2023 and in coming years, the Fed anticipates only modest initial reductions to its policy rate.
Another important highlight for this week is the Bank of England announcing its interest rate decision later today. In the meantime, the GBP, fell to fresh multi-month lows following an inflation report that surprised to the downside on Wednesday, as it raises concerns about whether the Bank of England may follow the Fed in holding rates unchanged.
Energy prices continue with more sharp declines on Wednesday, after reaching highs last seen in November 2022 earlier this week. Brent and WTI ended the session with losses of 1.28% and 1.65% respectively and continue to move further into negative territory early on Thursday, pressured by a stronger dollar as well as the fact that U.S. interest rate hike expectations create a negative outlook for growth and global demand and offset the impact of declining inventories.
Wall street has been steadily losing ground since last Thursday and continues to display negative momentum following the Fed’s hawkish remarks. For Thursday, the US 500 fell by 1.16%, the US 30 was down 0.32% and the US tech 100 posted a sharp decline of 1.76%. The decision of the Federal Reserve to proceed with further rate hikes and maintain its hawkish stance for longer seems to have boosted the dollar and taken its toll on the US stock market, while negative sentiment appears to be spreading to Asian markets as well.
Key releases up ahead on Thursday include the UK U.K. interest rate decision, U.S. unemployment claims, the Philly Fed Manufacturing index, US existing home sales and a speech by ECB’s president Christine Lagarde.
The EUR/USD pair declined sharply on Wednesday, following the FOMC meeting, driven by a stronger US Dollar. The pair posted losses of 0.29% and ended the session near 1.0650 level.
As widely expected, the Federal Reserve kept its interest rate target range unchanged at 5.25-5.50% in a unanimous decision. The statement showed practically no changes compared to the July meeting. The outcome of the meeting was seen as hawkish. US bond yields jumped, reaching multi-year highs. This combination boosted the US Dollar across the board.
Later today, Jobless Claims, the Philly Fed, and Existing Home Sales are due, and Eurostat will release preliminary Consumer Confidence data.
Gold prices traded between gains and losses on Wednesday reaching levels near $1947.00 per ounce but ended the session with losses of 0.10%.
Increased uncertainty before the Fed meeting saw gold catch some bids in recent sessions, but those highs gave way to a stronger dollar, which initially hit six-month highs. Gold have backed off as the Fed’s dot plot was more hawkish than expected.
Oil prices fell on Wednesday, with WTI contract on iForex platform ending the session with losses of 1.65% after the U.S Federal Reserve left interest rates unchanged as widely expected but stiffened its hawkish stance with a further rate increase projected by the end of the year.
Energy markets, meanwhile, had little reaction to U.S. energy data showing crude inventories fell in line with expectations last week. Crude inventories fell by 2.1 million barrels last week, compared with analysts' expectations in a Reuters poll for a 2.2 million-barrel drop.
U.S stocks tumbled, and Treasury yields shot up on Wednesday after the U.S. Federal Reserve projected another rate hike by year end and much tighter monetary policy through 2024 than previously expected to fight still too high inflation.
At the close U.S main indexes posted sharp decline with US 500 and US 30 ending the session 1.16% and 0.32% lower while US Tech 100 ended the day with losses of 1.76%.
Ahead in Thursday’s trade, market participants will be monitoring the Philadelphia Fed manufacturing and employment indexes, weekly jobless claims as well as existing home sales and Q2 current account data.
The materials contained on this document should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. For the full disclaimer click here.
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