By Samir El Khoury, ACICMP®
How did the financial markets react to the Fed’s decision yesterday?
During its recent meeting, the Federal Open Market Committee opted to maintain interest rates at 5.25% and 5.50%, in line with analysts’ expectations. However, the spotlight turned to the Dot plot forecasts, projecting a substantial 75-basis-point interest rate cut for the upcoming year. Significantly, US Federal Reserve Chairman Jerome Powell, in his press conference, not only confirmed the end of the strict tightening campaign but also underscored the shift towards rate cuts due to slowing inflation.
How did the Dot plot forecast and Jerome Powell’s speech impact the financial markets?
Major American stock indices, such as the Standard & Poor’s 500, Dow Jones, Nasdaq 100, and Russell 2000, closed with robust gains. The VIX Fear and Volatility Index plummeted to 11.81 points, its lowest level since January 2020, signalling stability and investor satisfaction in US stock markets. Moreover, gold, Bitcoin, and most foreign currencies strengthened against the US dollar.
What about US Treasury bonds?
Both short-term and long-term US Treasury bond prices experienced substantial increases. The two-year US Treasury bond yield declined to 4.30%, marking a decrease from the October 29, 2023, peak of 5.25%, the highest level since 2006. Additionally, the yield on 10-year US Treasury bonds breached the 4% barrier, settling at 3.94%.
So, who is the most affected?
The US dollar index emerged as the primary loser, recording 102.46 points today, its lowest since August 11, 2023, reflecting a significant 4.50% decline from its peak of 107.34 on November 1, 2023. Technically, the US Dollar Index continued its downward trend, trading below the 50-day moving average at 104.94 points and the 200-day moving average at 103.52 points, indicating negative momentum. The Relative Strength Index (RSI) supports the bearish momentum, recording 35 points below the 50-point level and approaching the oversold area.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.
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