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USD drops ahead of FRB policy decision
The USD fell against other major currencies yesterday and continues to fall today.
“USD drops ahead of FRB policy decision”
The USD fell against other major currencies yesterday and continues to fall today, reflecting market concerns over the possibility of US default and the ongoing crisis in the banking sector.
US Treasury Secretary Yellen stated that there is a high likelihood of default by June 1st if Congress does not raise the debt ceiling.
The recent collapse of First Republic Bank has also sounded a warning about the impact of recent banking turmoil, which has yet to be fully reflected.
The decline in job vacancies reported in the JOLTS report for March, the fourth consecutive monthly decrease, may also be a factor in pressuring the USD.
Following the release of this data a day before the FRB meeting, the market seems to be confident that the FRB will pause rate hikes after today’s policy decision and begin cutting rates in the second half of the year.
While a 0.25% rate hike is expected at today’s policy decision, a cut of around 0.75% is also priced in by year end.
Possibility of the last rate hike by the FRB Today’s rate hike is expected to be a foregone conclusion, so it is unlikely to cause a significant market shock.
Therefore, if the FRB decides to hike rates today, the focus will be on the statement and Powell’s press conference.
The market will be considering whether this rate hike will really be the last and what policy the FRB will pursue in the future.
Given that the underlying inflation rate is maintaining a significant stickiness above the FRB’s 2% target and inflation expectations are also recovering, it would not be wise for Powell to rule out the possibility of future rate hikes.
Likewise, Powell is likely to push back on the possibility of rate cuts, but the key question is whether the market will believe this statement.
If the FRB hints at the next rate hike, the USD may rise, but it is still too early to say if it will reverse the bearish trend.
While the market is convinced of a rate cut by the FRB later this year, it is likely that profits will be returned to the EUR if the ECB announces further rate hikes and remains hawkish tomorrow.
US Stock Prices Retreat Due to Decline in Bank Stocks Yesterday, all three major US stock market indices fell by over 1%.
The reason for this decline was due to concerns over the health of the banking sector and the possibility of the US government defaulting on its debt, causing a drop in local bank stocks.
The SP500 fell below the key resistance level of 4,150, and if the Federal Reserve Board (FRB) were to take a hawkish stance today, there is a possibility that this decline could expand.
However, the outlook for the US stock market appears to be far from bearish.
Given the possibility of a rate cut by the FRB and the low hurdle for earnings season this year, there is little room for major disappointment, which could potentially curb any further downturn in the stock market.
The market’s tension is reflected in the price of crude oil and gold, with yesterday’s WTI crude oil futures falling by over 5%.
On the other hand, gold rebounded from its temporary decline, indicating that its upward trend is not yet over.
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