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FRB signals halt in interest rate hikes at next meeting
ECB announces policy interest rate decision today.
“FRB signals halt in interest rate hikes at next meeting, ECB announces policy interest rate decision today”
USD continues to fall on expectation of direction change by FRB Yesterday, the market factored in a temporary halt to interest rate hikes at the next meeting by FRB as they displayed a dovish stance in their forward guidance at the meeting, causing the USD to continue to fall since yesterday and in today’s Asian session.
While FRB did decide on an expected interest rate hike of 0.25%, the statement released after the policy decision removed the wording indicating the possibility of some additional tightening being appropriate and added that the delay in the impact of monetary policy on economic activity and inflation, as well as the consideration of the economic and financial situation, must be taken into account when deciding whether further interest rate hikes are necessary.
Furthermore, as mentioned by Chairman Powell in the press conference after the policy decision, FRB made it clear that they will focus on data in the future.
However, the Chairman stated that it would take time to return the inflation rate to 2% and that they are prepared to take further action if necessary.
During the Q&A, while interest rate hikes were not temporarily halted at this meeting, it was noted that there is a possibility of doing so at the next meeting in June.
Initially, due to the dovish stance of the forward guidance, the pressure was on the USD to fall, but it found support as Chairman Powell did not deny the possibility of interest rate hikes in June during the press conference.
However, the market appears to be convinced of the possibility of a temporary halt in interest rate hikes at the June meeting, and the USD has continued to fall.
Currently, the market has priced in a reduction in interest rates of approximately 0.80% by the end of the year, so it can be said that the USD is likely to continue to decline at least until the next June meeting.
Pay attention to President Lagarde’s comments in today’s ECB policy decision Today, the ECB policy decision is expected to continue, with an anticipated interest rate hike of 0.25%.
According to the short-term financial market, about 80% support a 0.25% interest rate hike, while the remaining 20% support a 0.50% interest rate hike.
Therefore, for investors who expect a 0.50% interest rate hike, a 0.25% interest rate hike will be a disappointment, and the euro is likely to decline.
However, ECB President Lagarde has repeatedly emphasized that underlying price pressures are still strong, so ECB members are showing further interest rate hikes, and the market has priced in an additional 0.75% interest rate hike by the ECB in the future.
Therefore, if President Lagarde shows a hawkish stance, the euro’s decline related to policy decisions may be limited and short-lived.
The FF interest rate futures suggest a Fed rate cut in the second half of the year, which would continue to benefit the Eurodollar due to the divergence in interest rate policies between the ECB and the Fed.
For this trend reversal to occur, the market needs to be convinced that either the ECB’s interest rate policy is insufficient or that the Fed will not cut interest rates even if it stops raising them.
Due to concerns about a recession, US stocks fell while gold rose to a record high.
Yesterday’s US stock market closed in the red despite expectations of a rate hike pause at the June meeting.
This is because there are still concerns about the performance of the US economy, which outweigh satisfaction with current value prospects.
This situation is also supported by the fact that crude oil prices fell 5% yesterday.
Concerns about a recession, along with a drop in US bond yields and a weak dollar, once again put the spotlight on gold.
After reaching a record high of nearly $2,072.50 in August 2020, gold retreated during today’s Asian session.
Concerns about a recession in the market are still high, and gold may continue to rise beyond its previous record high as a result of rate cut expectations until the end of the year.
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