After the Fed, the focus now turns to the European Central Bank. During the Asian trading session, New Zealand will report Building Permits, Australia will report Trade Balance figures, and the Chinese Caixin Manufacturing PMI is also due.
Here is what you need to know on Thursday, May 4:
As expected, the Federal Reserve raised interest rates by 25 basis points to 5.00-5.25%, the highest level since 2007. The FOMC also removed forward guidance about further rate hikes but noted that the timing of future rate changes would depend on incoming economic data. The bias still favors further tightening. The currency market saw limited impact.
Analysts at Societe Generale explained:
With the Fed funds target range of 5.00-5.25% the Fed has met its dot-plot guidance from last December and updated as of March. A pause is the next step. A full stop requires confirmation that inflation pressures (rents in particular) subside and employment slows.
Wall Street stocks closed lower, and US bond yields declined further, putting pressure on the US Dollar. The US Dollar Index (DXY) closed at its lowest level in a week, around 101.35 but remained above recent lows. Meanwhile, the US 10-year yield settled at 3.36%, marking a one-month low.
The US will release data on Q1 Unit Labor Costs and weekly Jobless Claims on Thursday. The ADP Employment report for April showed a surge in private payrolls, rising by 296K and surpassing expectations. However, the market's reaction to the data was muted as investors await Friday's Nonfarm Payrolls report.
The focus has shifted to the upcoming European Central Bank (ECB) meeting, where a 25 basis point rate hike is expected, but a 50 basis point hike is also possible. The outcome of the meeting is likely to trigger reactions in the Euro. The EUR/USD pair approached 1.1100 after the FOMC statement before returning to 1.1050. Despite the limited upside, the pair remains bullish.
European Central Bank Preview: Lagarde set to lift the Euro in two out of three scenarios
Since June, GBP/USD reached its highest intraday levels, approaching 1.2600 before retreating slightly. The bias is to the upside.
USD/JPY extended its slide for the second day in a row, impacted by lower US yields and the decline in equity prices on Wall Street. Over the past two days, it has fallen over 200 pips, hitting three-day lows at 134.82.
AUD/USD rose for the third consecutive day but failed to hold above 0.6700, indicating that it is still being prepared for a bullish breakout. Nevertheless, it remains far from the recent lows. The Australian trade data and the Caixin China Manufacturing PMI are due on Thursday.
NZD/USD continued to edge higher, reaching two-week highs at 0.6260. The Kiwi outperformed CAD and AUD following positive labor market data from New Zealand. Market participants expect the Reserve Bank of New Zealand (RBNZ) to raise rates again at the next meeting on May 24. In the Financial Stability Report, the RBNZ stated that the national financial system is well-positioned to deal with rising interest rates and global risks.
Crude oil prices dropped again, falling by more than 4%. WTI posted its lowest close since mid-March, near $68.00. Gold continued to rise, holding firm above $2,000; it peaked at $2,036, with the year-to-date high around $2,050 on the radar. Silver also gained but more modestly, rising to $25.50. Cryptocurrencies fell on Wednesday, with BTC/USD down 1% to $28,350
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