Forex Today: Fed Signals Higher Rates, Risk Sentiment Deteriorates

Yesterday’s US Federal Reserve meeting signalled another rate hike and fewer rate cuts next year, sending risk sentiment firmly lower.

   

  1. Yesterday’s meeting of the US Federal Reserve delivered a hawkish message while leaving its interest rate unchanged for now, as expected. The Fed signalled that the terminal rate within the current tightening cycle has not yet been reached, making it clear it expects to hike rates again in 2023 one more time, by 0.25%. The Fed also forecasted it would make only 2 rate cuts of 0.25% each in 2024, fewer than was expected. This had the effect of sending stocks lower and the US Dollar higher, as well as sending US treasury yields to long-term highs, with the 2-year yield reaching its highest level in 15 years, well above 5%.
  2. Yesterday’s release of US CPI (inflation) data came in considerably softer than expected, at an annualized rate of 6.7% when 7.0% was the consensus forecast. The data initially weaken ed the British Pound, but the Pound later recovered its value, before falling again driven by the US Dollar.
  3. The Forex market is seeing a considerably stronger US Dollar after yesterday’s Fed meeting. The USD/JPY currency pair reached a fresh 10-month high price well above ¥148, while the EUR/USD traded at a 6-month low, and the GBP/USD currency pair at a 3-month low – all of which will be interesting to trend traders. Risk-off sentiment is putting the US Dollar in the driving seat, with Australian Dollar looking like the weakest major currency today.
  4. Stock markets are lower across the board, with the MSCI China Index near to closing at a new 10-month low price.
  5. Yesterday saw Crude Oil again fall in value after recently reaching a new 10-month high price, as markets showed fresh signs of tightness driven by OPEC supply cuts. Commodity markets were hit by the decline in risk sentiment, with Gold making a bearish turn after it hit and rejected the long-term key resistance level at $1945.
  6. New Zealand GDP data released earlier came in much better than expected, showing economic growth of 0.9% over the last quarter, while only 0.4% was anticipated.

 

Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.