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The US central bank unanimously decided to keep interest rates at 5.25-5.50%. Comparing the Fed’s announcement to the July meeting, there were little differences. The majority of FOMC members predicted that another rate increase might be necessary before the year is through. During the press conference, Fed Chair Powell made it clear that the “dot plot” is not a strategy.
Because of a strong US Dollar and the worsening state of the market, AUD/USD once again failed to hold above 0.6500 and fell below 0.6450.
Gold peaked near $1,950 and then tumbled to $1,930s as the Fed reinforced the “higher for longer” scenario. Silver traded above $23.50 but slid back to $23.20.
The FOMC is attempting, as expected, to maintain the possibility of one more raise before the year is out. Additionally, the eventual inferred speed of relaxing has been altered and pushed out, even though the implied near-term terminal rate may not change compared to June.
The impact of the Fed meeting will continue on Thursday when more US data is due with the weekly Jobless Claims, the Philly Fed, and Existing Home Sales.
The possibility of a US government shutdown is increasing. In order to avoid a shutdown in October, legislation needs to be passed before the end of the week.
US Treasury yields jumped, with the 10-year rising to 4.40%, the highest since 2007, and the 2-year reaching 5.17%, a level not seen since 2006. Higher yields offered a boost to the Greenback. In Wall Street, stocks failed to hold onto gains and finished lower. The Dow Jones lost 0.22%, and the Nasdaq declined by 1.53%.
The US Dollar Index jumped from 104.60 to test recent highs around 105.40 after the FOMC September meeting. The DXY has a key resistance at 105.50.
EUR/USD sharply reversed from 1.0730 and dropped to the 1.0650 area, indicating that the bearish trend remains intact. On Thursday, the Eurozone preliminary Consumer Confidence Index for September is due. The critical economic report of the week is the PMIs on Friday.
Economic Data
The Bank of England’s decision was impacted by the unexpectedly negative UK inflation statistics. A rate hike was anticipated before the release of the data, but following, the odds became more evenly split, favouring a halt. The BoE will make its judgement public on Thursday, which is expected to cause volatility. The Monetary Policy Committee’s conclusion and vote will be extensively examined by market participants.
GBP/USD bottomed at 1.2331 after the data, then rebounded to 1.2420 before reversing following the Fed’s announcement, falling to fresh lows around the 1.2330 area.
Other Key Developments
The MPC softens its forward guidance and votes skew towards a hold, effectively indicating the end of the hiking cycle. However, Wednesday’s downside shock to August inflation and concerns about tepid GDP growth and a rapidly rising unemployment rate lead the MPC to soften its forward guidance.
When USD/JPY was trading above 148.00 early on Wednesday, Japanese authorities intervened verbally. The pair subsequently began to retrace its steps before rising to 148.30 after the Fed meeting. Intervention might occur if the pair continues to move above 148.50.
Despite reaching its best daily close since late May, the USD/CHF rate is still below 0.9000. On Thursday, the Swiss National Bank will announce its decision, which is anticipated to be a rate increase of 25 basis points to 2%.
NZD/USD surged to its highest level in two weeks at 0.5985 before losing all of those gains and closing just marginally above the 20-day Simple Moving Average (SMA) at 0.5930. On Thursday, New Zealand will release data on credit card spending and Q2 GDP growth.
