US Stocks Hit After Hawkish Fed Hold – Nasdaq down 1.3%
US markets retreated overnight after the Federal Open Market Committee left interest rates unchanged but delivered a more hawkish message through its updated quarterly projections. With nine committee members still forecasting at least one rate increase before the end of the year, investors pared back expectations for easing and pushed Treasury yields sharply higher.
The shift in sentiment weighed on equity markets, with the Dow Jones falling 0.98% to close at 51,492. The broader S&P 500 lost 1.21% to finish at 7,420, while the technology-heavy Nasdaq underperformed, declining 1.34% to 26,021.
Bond markets saw significant moves following the Fed announcement. The two-year Treasury yield, which is particularly sensitive to interest rate expectations, surged 13.4 basis points to 4.185%, while the benchmark ten-year yield climbed 4.8 basis points to 4.487%. The move higher in yields helped propel the US Dollar Index 0.84% higher to 100.38, with the greenback gaining ground against the major currencies.
Commodity markets were comparatively subdued. Oil prices edged lower as traders continued to look ahead to the full reopening of the Strait of Hormuz. Brent crude slipped 0.53% to settle at $78.72 a barrel, while West Texas Intermediate crude eased 0.33% to $76.79. Gold came under heavy pressure from the stronger US dollar and higher yields, falling 1.70% to finish at $4,256.51 an ounce.
Yen Traders on Intervention Watch
The Yen will come under close scrutiny in the coming sessions and days after it hit its weakest level against the dollar since July 2024 in trading yesterday. A hawkish hold from the Federal Reserve sent the dollar surging higher in trading overnight with USDJPY topping out at 160.79. We have seen action from the Ministry of Finance already this year at these levels and traders will be very wary of further intervention with memories still fresh of the 3.5% drop the pair took in late April when the authorities came in. Fundamentals are still pointing to the pair moving further north in the coming days and weeks after US yields leapt on the Fed update, so the market may see any intervention as just better levels to buy, however the trick will be in picking where the base comes if they do hit the market hard. Short-term support on the Daily chart now comes in around 160.30, however that is likely to be swiftly taken out if we do see intervention, so the longer-term support line down around the 157.00 level will probably be the first level of strong support that traders will target. Until we see any official action, expect the pair to continue to grind higher.
Central Banks Remain in Focus in Day Ahead
Focus for traders will remain in central banks in the coming sessions with the Swiss National Bank and the Bank of England are both due to announce their latest policy decisions in the London session with both banks expected to keep rates on hold at 0% and 3.75% respectively. However, traders are expecting volatility in both local markets on the forward guidance given in their respective statements and press conferences. UK markets also have key employment data to factor in earlier in the day with the Claimant Count expected to show a 25.8k increase over the last month and the Unemployment Rate to remain at 5%. The US session will see the Philly Fed Manufacturing Index (exp 9.8) and Weekly Unemployment Claims (exp 225k) figures released, but markets are expecting the fall out from yesterday’s Fed meeting to resonate through the session whilst any further developments on the geopolitical front are also likely to remain an important influence on overall market sentiment.
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