Markets
Market participants clung to every word uttered by Chair Powell as risk assets whipped around in a frenetic fashion during the afternoon US trading session.
Ultimately, U.S. stocks finished mixed after Powell stated that the interest rate cuts Wall Street desires are still likely, albeit potentially delayed due to stubbornly high inflation. The S&P 500 fell 0.3% on Wednesday after a significant afternoon rally evaporated. Meanwhile, the Dow Jones Industrial Average rose 0.2%, and the Nasdaq composite lost 0.3%.
Powell's remarks indicated that while inflation is taking longer than anticipated to come under control, the Fed's next move is unlikely to be a rate hike. Additionally, he announced measures to help stabilize the bond market, providing some downside protection for financial markets.
Initially, investors found solace in Powell's remarks, which alleviated concerns that the Fed might adopt a more aggressive stance in response to signs of stalled inflation progress. Additionally, futures markets indicated a slightly higher probability of policymakers implementing two rate cuts this year, compared to the previously expected one cut.
However, on a more realistic note, Powell refrained from explicitly indicating that rate cuts were imminent this year or suggesting that rates had reached their peak, as he had previously stated, and stocks subsequently reversed course.
Powell's guidance is unlikely to dissuade market participants from continuing to place heavy emphasis on the game of data dependency. Market sentiment will remain highly sensitive to economic indicators that could drive shifts in monetary policy expectations. As investors assess incoming data and the Fed's anticipated response, stock movements are likely to reflect ongoing uncertainty and volatility.
At the end of the day, the global investment community is left betting on an extremely complicated set of hypotheticals where the landscape often feels like trying to decipher a complex puzzle with constantly shifting central bank policy pieces.
May's decision was no decision at all, as traders had ruled that out weeks ago. But in the context of the recent inflation overshoots, a June cut seems unlikely, but a hawkish revision to Summary of Economic Projections still seems odds on
Consecutive significant downside misses on Non-Farm Payrolls (NFP) prints or an unexpected abrupt downturn in inflation gauges would be necessary to keep the 2024 dot unchanged next month. However, such developments are unlikely. Barring any sudden deterioration in the labour market, which seems improbable, next month's SEP update will likely show a shift upward in this year's dot plot marker by 25 basis points, and possibly even by 50 basis points.
Forex
As expected, Japan's Ministry of Finance, via the Bank of Japan, was back selling US dollars to stabilize the Yen. Indeed, the Japanese government is digging into their sizable 1.2 trillion USD war chest, looking to take profit on the dollar they bought back in 2000. If they commit to an intervention regime, it will likely placate Yen bears from chasing USDJPY flights of fancy higher than recent tops.
As we suggested from the onset, the idea was to stabilize the JPY, where 155-157 USDJPY would likely be a great spot for the MOF to park and buy time for the Fed to eventually cut rates.
Of course with Japan’s TONA at 0-.1% while SOFR is effectively 5.3%, everyone knows this is a tough battle to win. However, when a currency crisis looms, central banks will huddle as the last thing the global and especially the ASEAN economy needs is for the Yen to go unhinged.
SPI Asset Management provides forex, commodities, and global indices analysis, in a timely and accurate fashion on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.
Our publications are for general information purposes only. It is not investment advice or a solicitation to buy or sell securities.
Opinions are the authors — not necessarily SPI Asset Management its officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.
Recommended Content
Editors’ Picks
AUD/USD trades stronger above 0.6650 on positive risk sentiment, hawkish RBA
![AUD/USD trades stronger above 0.6650 on positive risk sentiment, hawkish RBA](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/AUDUSD/hundred-bucks-3645622_XtraSmall.jpg)
The AUD/USD pair kicks off the new week on a positive note around 0.6670. A risk-on tone across markets and rising expectations of an imminent rate cut by the Federal Reserve drag the US Dollar lower and provide some support to the pair.
EUR/USD rises toward 1.1050 due to dovish Fedspeak
![EUR/USD rises toward 1.1050 due to dovish Fedspeak](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/colorful-euro-banknotes-3397150_XtraSmall.jpg)
EUR/USD extends its gains for the second successive session, trading around 1.1030 during the Asian hours on Monday. The upside of the pair could be attributed to the rising odds of an interest rate cut by the US Federal Reserve starting in September.
Gold holds above $2,500 amid persistent geopolitical risks, hopes for Fed rate cuts
![Gold holds above $2,500 amid persistent geopolitical risks, hopes for Fed rate cuts](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/stacked-gold-bars-13094022_XtraSmall.jpg)
Gold price gains momentum around $2,505 during the early Asian session on Monday amid hopes of the US Federal Reserve rate cuts in September. Gold traders will take more cues from the first reading of the US S&P Global Purchasing Managers Index and Fed Chair Jerome Powell's speech this week.
What Bitcoin did this week and what to expect from BTC
![What Bitcoin did this week and what to expect from BTC](https://editorial.fxstreet.com/images/Markets/Currencies/Digital%20Currencies/Bitcoin/bitcoin_forex_XtraSmall.jpg)
Bitcoin hovers around key psychological support at $60,000 on August 18, at the time of writing. Data from IntoTheBlock shows that Bitcoin Exchange Traded Funds recorded nearly $13 million in net flows during the week.
Asia week ahead: Central bank decisions set to dominate
![Asia week ahead: Central bank decisions set to dominate](https://editorial.fxstreet.com/images/Macroeconomics/Countries/Asia/RussianFederation/kremlin-4156623_XtraSmall.jpg)
Central bank decisions will dominate the week ahead in Asia, with policy announcements from the Bank of Korea, Bank Indonesia and People’s Bank of China.