The U.S. dollar posted moderate gains on Wednesday’s session, with the dollar index (USDX) up by 0.21% closing in on the six-month high of 105.54 seen last week. The Fed held interest rates unchanged as anticipated on Wednesday and projected an increase by year-end, saying monetary policy is likely to be significantly tighter through 2024 than previously thought. According to Fed officials, as inflation slows for the rest of 2023 and in coming years, the Fed anticipates only modest initial reductions to its policy rate.
Another important highlight for this week is the Bank of England announcing its interest rate decision later today. In the meantime, the GBP, fell to fresh multi-month lows following an inflation report that surprised to the downside on Wednesday, as it raises concerns about whether the Bank of England may follow the Fed in holding rates unchanged.
Energy prices continue with more sharp declines on Wednesday, after reaching highs last seen in November 2022 earlier this week. Brent and WTI ended the session with losses of 1.28% and 1.65% respectively and continue to move further into negative territory early on Thursday, pressured by a stronger dollar as well as the fact that U.S. interest rate hike expectations create a negative outlook for growth and global demand and offset the impact of declining inventories.
Wall street has been steadily losing ground since last Thursday and continues to display negative momentum following the Fed’s hawkish remarks. For Thursday, the US 500 fell by 1.16%, the US 30 was down 0.32% and the US tech 100 posted a sharp decline of 1.76%. The decision of the Federal Reserve to proceed with further rate hikes and maintain its hawkish stance for longer seems to have boosted the dollar and taken its toll on the US stock market, while negative sentiment appears to be spreading to Asian markets as well.
Key releases up ahead on Thursday include the UK U.K. interest rate decision, U.S. unemployment claims, the Philly Fed Manufacturing index, US existing home sales and a speech by ECB’s president Christine Lagarde.
EUR/USD
The EUR/USD pair declined sharply on Wednesday, following the FOMC meeting, driven by a stronger US Dollar. The pair posted losses of 0.29% and ended the session near 1.0650 level.
As widely expected, the Federal Reserve kept its interest rate target range unchanged at 5.25-5.50% in a unanimous decision. The statement showed practically no changes compared to the July meeting. The outcome of the meeting was seen as hawkish. US bond yields jumped, reaching multi-year highs. This combination boosted the US Dollar across the board.
Later today, Jobless Claims, the Philly Fed, and Existing Home Sales are due, and Eurostat will release preliminary Consumer Confidence data.