Fed Cut Overshadowed by Hawkish Tone – Dow Down 0.15%
Markets moved sharply overnight after the Federal Reserve delivered a 25-basis-point rate cut, but the move was largely overshadowed by a more hawkish tone in both the accompanying statement and Chair Powell’s press conference. The mixed message unsettled investors, leaving U.S. equities without clear direction by the close. The Dow dipped 0.16% to close at 47,632, while the S&P 500 held near 6,890. Tech stocks fared better, helping the Nasdaq gain 0.55% to 23,958. The U.S. Dollar Index strengthened 0.56% to 99.22, while U.S. Treasury yields surged, with the 2-year rising 10.8 basis points to 3.602% and the 10-year up 8.6 basis points to 4.070%. Oil prices edged higher, with Brent crude up 0.36% to $64.63 and WTI gaining 0.56% to $60.48. Gold, meanwhile, endured a volatile session before ultimately falling 0.56% to $3,929.36, pressured by the stronger dollar and rising yields.
Dollar Pushes Higher After Fed Meeting
The dollar gained ground across the majors yesterday after the Federal Reserve Bank cut rates by 25 basis points as expected but was much more hawkish on its forward guidance than the market expected. Fed Chair Jerome Powell advised that another rate cut in December was by no means a foregone conclusion, and market pricing dropped from around 90% to 60% for a cut at the next meeting. Treasury yields and the dollar both jumped higher, and FX traders are now set for interest rate differential trades that traditionally take longer-term trends to exert more pressure over the next few days. The Bank of Japan is the next cab off the rank today, and if they pull back significantly on their previous hawkish outlook, USD/JPY could push much higher in the coming sessions.
Another Busy Day for Traders Ahead
It promises to be another busy day on the data and central bank front. In Asia, focus will be firmly on Japan, where the Bank of Japan is set to announce its latest interest rate decision, followed by a press conference that could shed light on the outlook for policy normalization and yen intervention risks. We are also set to hear from President Trump when he updates the markets on the China–U.S. trade situation. In the London session, attention will turn to a series of key inflation and growth releases. Germany will publish its preliminary CPI figures throughout the day, while Spain’s flash CPI data is due out shortly after. Later in the session, German GDP numbers will provide further insight into the health of Europe’s largest economy. The spotlight will then shift to the European Central Bank, with its interest rate decision scheduled midway through the day, followed by President Lagarde’s press conference. Markets will be watching closely for any shift in tone regarding inflation persistence and potential easing in the months ahead. The New York session is relatively quiet, with little on the cards; however, expect more fallout from the Fed’s latest update and any further geopolitical news.
