The US Dollar Index continues pounding after the Federal Reserve’s latest interest rate hike. The price of the Dollar Index is declining below 102.00 and is close to reaching a 2-month low. So far this morning, the Dollar is declining by 0.25%. Global stocks are higher than the day’s open price but lower than yesterday’s due to a significant decline after the Fed’s interest rate hike.
The Fed’s 2-day meeting ended with the Federal Open Market Committee determining a 0.25% hike as most appropriate. The interest rate hike was as expected, but investors were more concerned with the Fed’s comments and the Treasury’s press conference. The treasury’s press conference took place simultaneously and sparked a strong selloff in the stock market. During today’s market analysis blog, we will explore why investors sold US-based assets significantly.
Investors will also monitor developments from today’s Bank of England rate decision and press conference. Investors are leaning towards a 25 basis point hike and a halt for the next few months. This is despite yesterday’s red-hot inflation figures.
NASDAQ - US Treasury Confirms no Guarantees
The NASDAQ saw the sharpest decline after the press conferences held by the Federal Reserve and US Treasury. At first, the price gained 1.25% reaching a new 7-month high. However, the price came under immense pressure due to specific comments within both press conferences. However, traders should note that the price is experiencing moderate bullish momentum during this morning’s futures market. Today, the price is increasing by 1.10% but is still 0.80% lower than yesterday’s price before the press conferences.
As mentioned during yesterday’s market analysis, the stock market may be supported if the US treasury confirms a “blanket” for US depositors or some kind of insurance. A different indication can significantly pressure equities. Indeed the Treasury Secretary, Janet Yellen, confirmed there are no such discussions or plans to introduce any kind of additional guarantees. Simultaneously, the Federal Reserve Chairman, Jerome Powells, advised that additional tightening will be implemented if required.
Bond yields have significantly declined, indicating that many traders do not believe the Federal Reserve will be able to justify further interest rate hikes. Inventors should note that the monetary policy is already within the “restrictive zone,” and the Fund Rate is at a 16-year high. So far, the stock market has come under pressure from no further assistance from the US treasury and the possibility of a further hike going forward. Investors fear that inflation will push the Fed to a further hike putting more strain on the banking sector, while the government provides no cushion for depositors.
The NASDAQ, on the other hand, does have some support from other fundamental factors. The stock market is supported by the dovish hike and the possibility of cycling seeing an end if inflation continues declining. Analysts have also noted that fuel costs may decrease within the following inflation data. Investors were also quick to take advantage of the discounted price. In addition, investors will start planning for the next earning season, which is only a few weeks away.
The NASDAQ will be particularly interesting as investors will follow the AI drive and how the tech companies have performed after significant layoffs over the past quarter. Have the layoffs managed to improve expenditure and, more importantly, earnings? The Board of Meta has already confirmed a second round of employee cuts. According to the report, ten thousand employees will be let go, and recruiting will be limited. The company also decreased its workforce by almost 13%. Mortgage Stanley is also the latest company to upgrade their signal from hold to buy.
Regarding technical analysis, the price action continues to point towards an upward price movement due to this morning’s correction. However, investors will be cautious that the price does not decline again when the resistance level is again reached. Investors should also note that trading clouds, regression channels, and the RSI indicate a potential overbought level.
EUR/USD
The EUR/USD is forming its seventh consecutive bullish candlestick on the daily timeframe. This morning's price again renewed its weekly and monthly high and is 0.35% higher than the daily open price. Investors continue to ditch the US Dollar as other currencies become more attractive. The Dollar has come under pressure from the liquidity crisis and the Fed’s dovish tone.
The Dollar is specifically under pressure from the Euro and the Swiss Franc. Both currencies were supported by stable economic figures and also a 50 basis point hike. This morning the USD/CHF moved 0.60% in favour of the Franc after the Swiss National Bank hiked a further 0.50%, double that of the Fed.
Most economists and analysts have advised investors to look for alternatives to the Dollar, including other currencies, cryptocurrencies, and safe haven assets. Investors have expressed dissatisfaction with the US financial system and Powell’s comments on the “uncertain economic future.” So far, investors have opted for other currencies where the Central Bank has taken a more hawkish tone. This includes the Euro and the European Central Bank. On the other hand, technical analysts are concerned about the Dollar being undervalued in the short term.
Summary:
- The Federal Reserve increases interest rates by a further 0.25% but signals an “uncertain economic future.”
- Treasury Secretary, Janet Yellen, confirmed there are no such discussions or plans to introduce any kind of additional deposit guarantees.
- The NASDAQ increased during this morning’s Futures Market but experienced a strong selloff after yesterday’s Powells-Yellen press conference.
- Investors favour other currencies and safe haven assets over the Dollar due to a weak hike and uncertainty.
