19/12/2024 - 08:40 UTCThe U.S. dollar gained sharply against most major currencies, with the dollar index hitting two-year highs on Wednesday, following the Federal Reserve's widely expected interest rate reduction. The central bank also hinted at a less aggressive approach to future monetary policy adjustments adding some strong support on the dollar.
The Fed lowered its benchmark policy rate by 25 basis points to the 4.25% to 4.50% range, with officials signaling they would likely pause future rate cuts next year given a stable labor market and inflation. The yield on benchmark U.S. 10-year notes rose 6.1 basis points to 4.446%, hitting a four-week high.
On Thursday, the Bank of Japan kept its current interest rate policy unchanged, aiming to assess global risks and domestic wage growth prospects for 2024. The bank gave signs that it prefers to tread carefully amid the upcoming tariffs due to be imposed by the US and one board member hinted that the bank may tighten its monetary policy next year.
The Bank of England is scheduled to announce its interest rate decision later today. Most analysts anticipate that the benchmark rate will remain at its current level of 4.75%. This comes as inflation climbed to 2.6% in November, exceeding the Bank's 2% target. The Bank's Governor has suggested that future rate adjustments will likely be downward but gradual.
On the cryptos front, Bitcoin experienced a 5% decline following the Federal Reserve's announcement that it would not participate in any government initiatives to acquire significant holdings of the world's largest cryptocurrency.
For Thursday markets will most likely be focusing on Bank Of England’s interest rate decision due later in the day as well GDP data from the U.S. Some price action could also be observed upon the release of the U.S. weekly jobless claims, the Philly Fed Manufacturing index, existing home sales, and tic long term purchases. For Friday the Fed’s favorite gauge for inflation Is due, the Core PCE Price Index.
The EUR/USD fell sharply on Wednesday, down by 1.37% following the FOMC press conference where Fed Chair Jerome Powell pointed to uncertainty over inflation, easing downside risks to employment and strong growth in the second half of the year as factors that forced officials to turn cautious on interest rate cuts. "I also point out that we're closer to the neutral rate, which is another reason to be cautious about further moves," Powell added.
Later today, US GDP data, weekly jobless claims, the Philly Fed Manufacturing index, existing home sales, and tic long term purchases are due.
Gold prices fell slightly on Wednesday, posting a 2.24$ per ounce decline by the end of the day, as the rates are expected to remain higher for a longer period after Wednesday's cut. Markets have ruled out chances of a cut in January and now expect just two more cuts in 2025, against their earlier expectations of four.
Some price action in the precious metal could be seen upon the upcoming inflation release of the core PCE price index as well as arate decision from the Bank of England.
Oil prices slipped further on Wednesday, with the two main benchmarks WTI and Brent down for a third consecutive session, both losing 0.46% of their value.
Prices declined after the U.S. Federal Reserve reduced its forecast for interest rate cuts in 2025, citing concerns about rising inflation. The central bank now anticipates two quarter-point rate reductions, half a point fewer than its September projection.
Meanwhile, while demand in the first half of December increased compared to the previous year, volumes remained below expectations for some analysts.
Market pessimism deepened in Wall Street with U.S. stock markets experiencing a sharp decline on Wednesday. All three major indexes suffered their largest daily losses in months. This followed the Federal Reserve's decision to reduce interest rates by a quarter of a percentage point, although the central bank's projections for future easing were more cautious than some investors had anticipated.
In corporate news, Mizuho analysts have reduced their price target for Micron Technology, citing the memory chip maker's disappointing near-term outlook and persistent challenges in the PC and smartphone markets. Although Micron has experienced robust growth in high-bandwidth memory (HBM), analysts have lowered their estimates due to the company's weaker-than-anticipated revenue and margin projections for the upcoming quarter. While Micron's November quarter results aligned with expectations, its guidance for the February quarter significantly missed consensus forecasts.
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