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The US Federal Reserve held rates steady as expected, but effectively dashed expectations of a rate cut at its September meeting, sending the US Dollar soaring.
- The US Federal Reserve's policy meeting yesterday held rates steady as was almost universally expected. What markets were closely watching was the Fed's position on inflationary pressures and the prospect of rate cuts at the September meeting, and further cuts at meetings later in 2025. Although Fed Chair Powell said some positive things about inflation coming under control, he said enough about the unseen potential impact of Trump's new tariffs to give the impression of strong caution on rate cuts, lowering the market's expectation of a September cut of 0.25% from about 63% to 43%, which had the effect of sending the US Dollar soaring higher to a new 2-month high. Interestingly, US stock markets were only marginally affected, and have bounced back strongly to trade at new record highs off-hours early this morning. Notably, the NASDAQ 100 Index is outperforming the S&P 500 Index as Microsoft becomes the first company except for NVIDIA to reach a market capitalisation exceeding $4 trillion. Trend traders will be interested in being long of these indices right now.
- It is worth noting that we are seeing a bounce-back from most of the strong price movements following yesterday's Fed meeting. In the Forex market, since the Tokyo open, the Australian Dollar has been the strongest major currency, while the US Dollar has been the weakest. The EUR/USD currency pair has traded sharply lower, reaching close to $1.1400 and fully invaliding its long-term bullish trend.
- Several commodities were hit hard by yesterday's hawkish Fed meeting, with new tariff announcements by President Trump adding to the situation. Most notable was Copper, which fell by as much as 17% on some exchanges. Trump announced a new 50% tariff on all copper imports which sent the price soaring higher a few weeks ago, but yesterday Trump announced a large slew of exemptions which relaxed demand for Copper and saw long trades unwinding dramatically. Many trend traders took a big hit on this.
- President Trump announced new tariff changes in addition to Copper:
- South Korea 15%
- India 25% (Trump had some harsh words for India)
- Brazil 50% (this is clearly punitive and related to the Brazilian state's current treatment of Bolsonaro, Israel, and its BRICS activities)
- Canada has also been threatened with a higher rate as PM Carney just announced his intention to recognise a Palestinian state in September.
- The Bank of Canada left its interest rate at 2.75% as was widely expected.
- US Advance GDP data released yesterday exceeded expectations, showing an annualized GDP increase of 3.0% when a rate of only was expected. This probably contributed to the market's hawkish reaction on the Dollar and lowered rate cut expectations.
- Yesterday's US Non-Farm Payrolls ADP forecast exceeded expectations, which will also have lowered expectations of a September rate cut by the Fed.
- In the crypto world, Ethereum is rising again after falling from a price near the big round number at $4,000 on Sunday. Trend traders will probably be looking to get long of Ethereum. Futures are available but there are also Ethereum ETFs which many traders will find more affordable. Bitcoin continues its bullish consolidation below the major resistance level at $120.055.
- The Bank of Japan left its interest rate unchanged but raised its inflation forecast, although this has not helped the Yen gain any value so far today.
- There are several high-impact data releases due today:
- US Core PCE Price Index which is very closely watched by the Federal Reserve as an inflation indicator.
- US Unemployment Claims
- Canadian GDP