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01/02/2024 - 08:55 UTCThe dollar posted a moderate increase against most major currencies on Wednesday, with the dollar index (USDX) remaining within the tight range for the last two weeks. The outcome of the FOMC monetary policy meeting was largely in line with expectations, with a Fed Chairman Jerome Powell downplaying the likelihood of a rate cut in March. Fed Chair Jerome Powell said in a press conference that the Fed would need to see more favorable data to be sure it was time to lower rates. "We do have confidence, but we want to get greater confidence" that cooling inflation data was sending "a true signal", he said.
According to the CME Fedwatch tool, the markets price in a 35.5% possibility that the 1st rate cut in 2024 will take place in the March FOMC meeting, while the same possibility for a rate hike taking place in May is at 61.3%.
On Wednesday, all three main US stock market indices fell sharply, shifting further away from recently reached all-time highs following the outcome of the Fed’s meeting where it signaled that it is nowhere near a rate cut unless inflation moves sustainably towards its 2% target. Investors are also focused on Friday's U.S. jobs report for January, which is expected to show that employers added 180,000 jobs during the month.
Fourth quarter earnings are also in focus, with some key market players publishing their quarterly results this week, among which are Honeywell, Peloton, Caribbean, Apple, Merck & Co Inc, Altria, Metaverse, ATLASSIAN, Amazon and CLOROX.
On the energy front, the two main benchmarks WTI and Brent posted a decline on Wednesday, with OPEC-JMMC Meetings in focus for possible hints on oil production planning of the group. According to reports, OPEC+ appears to have limited room to cut production further to support oil prices.
Some price action could be observed later in the day upon the release of the EU CPI Flash Estimate, the BOE Monetary Policy Report, US Jobless Claims, ISM Manufacturing PMI.
The EUR/USD pair posted a sharp decline on Wednesday ending the session 0.36% lower driven by the bullish momentum in the US dollar.
Around the greenback, the Federal Reserve left no room for surprises and kept its Fed Funds Target Range (FFTR) unanimously unchanged at 5.25%-5.50% at its event on Wednesday. At his subsequent press conference, Chair J. Powell stated that decisions will continue to be made meeting by meeting and expressed the belief that the policy rate is likely at its peak. Powell said that an interest rate cut in March appears unlikely.
Market participants should maintain the cautious approach ahead of the publication of the critical US Nonfarm Payrolls tomorrow.
Gold prices rose on Wednesday and were undeterred by the Federal Reserve stating that it will likely keep interest rates higher for longer, while safe haven buying amid an ongoing conflict in the Middle East also aided the precious metal.
The Fed’s comments spurred a sharp reversal in risk-driven markets, particularly stocks, on Wednesday. This in turn fuelled increased safe-haven demand for gold. Demand is still increased as a conflict between U.S.-led forces and the Yemen-based Houthi Group worsened.
Oil prices settled lower on Wednesday, pressured by low economic activity in leading crude importer China and a surprise build in U.S. crude inventories as producers ramped up output following frigid weather this month.
Manufacturing activity in China, the world's second-largest economy, contracted for a fourth straight month in January, an official factory survey showed on Wednesday.
Prices were pressured after U.S. Energy Information Administration data showed weekly crude inventories rose by 1.2 million barrels last week, compared with analysts' expectations for a 217,000-barrel draw.
U.S. stocks tumbled on the last trading day in January after the Federal Reserve held interest rates steady while dashing hopes for interest rate cut as soon as March. All three extended losses after the Fed's announcement and Chair Jerome Powell's subsequent press conference.
The three major U.S. stock indexes were already weighed down by weakness in tech and tech-adjacent megacap stocks the day after disappointing Alphabet results. The US 500 fell 1.08%, while the US 30 and US Tech 100 retreated 0.78% and 0.95% respectively.
Fed Chair Jerome Powell said that it will be appropriate to reduce rates once it has confirmation inflation has been reined in, but effectively ruled out a March rate cut.
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