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It has been a challenging week for Dow Jones price action, as the index has lost value consistently over the last two trading sessions, declining by more than 2.4%, which has led to the emergence of a new short-term bearish bias.
The week has not been favorable for euro price action in the short term. This is mainly due to the fact that, shortly after the Federal Reserve’s decision, EURUSD began to show renewed weakness.
Over the last two trading sessions, USDMXN has shown limited movement, with an average variation of around 0.3%, as the market awaits the U.S. central bank decision.
Stocks showed a strong reaction to the Fed and Gold hit a fresh ATH. Currencies were more muted but the question now is follow-through given the tenuous tariff topic.
The terminal rate is going to be as an important consideration for the markets as the decision to potentially downshift in December.
This morning, the Federal Reserve followed the lead of the ECB last week to deliver a hawkish surprise. The Feds dot plots showed the median dot in 2022 rose to 1.875%, consistent with another six rate hikes in 2022, in line with market expectations.
As we noted in yesterday’s FOMC Preview report, the US central bank was never going to make any immediate changes to policy, leaving traders to read Powell and Company’s tea leaves for implications about future tweaks. As it turns out, the tea leaves were clear: The Fed has undergone a major dovish shift.
Spoiler alert: The Federal Reserve won’t be making any immediate changes to monetary policy at the conclusion to this week’s two-day meeting. Nonetheless, it would be a mistake for traders to ignore the central bank’s economic projections and comments.
As he is wont to do on many topics, President Trump has waded into monetary policy discussion ahead of tomorrow’s Fed meeting. Just yesterday, he tweeted, “I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!”
As we anticipated yesterday (see here and here), the risk-on rally in the wake of this weekend’s “trade war truce” between the US and China has sputtered out relatively quickly. With US officials sending mixed messages about the content of the agreement and Chinese leaders maintaining radio silence, investors are increasingly concerned that a broad, long-term agreement within the next 90 days is a big ask.
If you’re one of the many readers who did, you’re excused for forgetting about today’s Federal Reserve meeting. After all, the high political drama in Washington and London continues to draw plenty of headlines, it’s the first time we’ve seen an FOMC meeting conclude on a Thursday in three years, and the central bank was never going to make any changes to monetary policy at its final ever meeting without a press conference anyway.
As we noted in yesterday’s FOMC Preview report, another rate hike this month was a “done deal” for the Federal Reserve, and Powell and Company delivered the expected 25bps increase as expected. The more interesting aspects of today’s release came from the central bank’s accompanying monetary policy statement and the quarterly Summary of Economic Projections.
Political news has dominated today’s headlines on both sides of the Atlantic.
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