Financial markets witnessed a mixed performance in the past trading sessions, as there were a lot of factors at play even before the announcement of the long-awaited FOMC decision.
Read on to find out how it all happened!
Titles:
- The final S&P Global Japan manufacturing PMI for April fell from 49.9 to 49.6.
- Reserve Bank of New Zealand Governor Orr highlighted how the financial system has already adjusted to suit a high interest rate environment, but spending and job security may be at risk.
- UK HPI for April: -0.4% mom (+0.1% expected, -0.2% previously)
- Australian commodity prices for April: -11.6% y/y (previously -14.9%)
- US Non-Farm Employment Change for April: 192K (179K expected, previous 208K)
- US ISM Manufacturing PMI for April: 49.2 (50.0 expected, 50.3 previously), prices component rose from 55.8 to 60.9, jobs component rose from 47.4 to 48.6
- US JOLTS Job Openings for March: 8.49 million (8.68 million expected, 8.81 million previous)
- US EIA Crude Oil Inventories: +7.3 million (-2.3 million expected, -6.4 million previous)
- The Federal Open Market Committee kept interest rates steady at 5.25-5.50% as expected, and slowed the pace of reducing bond holdings from its balance sheet by $35 billion.
- During the press conference, Fed Chairman Powell reiterated this “Further progress in reducing (inflation) is not guaranteed and the way forward is uncertain.”
- This was stated by Bank of Canada Governor Macklem “We have come a long way in the fight against inflation, and our recent progress is encouraging.” Which reduces expectations of a June cut
- The Bank of Japan reportedly intervened in the forex market after the US markets closed, but the Finance Ministry's Kanda declined to comment
Broad market price movement:
Dollar Index, Gold, S&P 500, Oil, 10-Year US Yields, Bitcoin Overlay Chart by TradingView
While the rest of the asset classes were fluctuating in their ranges while waiting for the FOMC decision, Bitcoin was already in selling mode and fell below the $60,000 level early in the day.
Crude oil was also in a fragile position before witnessing a sharp decline after seeing a sudden increase in EIA inventories, indicating a significant decline in demand.
Meanwhile, Treasury yields also started to decline despite a somewhat upbeat ADP jobs number, before stabilizing after seeing downward surprises in the ISM Manufacturing PMI and JOLTS jobs data.
On the other hand, gold rose at the beginning of the New York session and then joined US stock indices in another rise after the Federal Open Market Committee announced its policy decision. The Federal Reserve kept interest rates unchanged as expected, but gradually slowed the pace of reducing bond holdings from its balance sheet, which many interpreted as a form of policy easing.
The dollar and US yields took hits after the announcement, as the central bank dashed hopes of tightening monetary policy any time soon and stressed that its next step was still likely to be a cut, despite the lack of progress in getting inflation on target.
Forex market behavior: US dollar against major currencies
Overlay of the US dollar against major currencies Chart by TradingView
Consolidation was the name of the game for major currencies, with dollar traders likely biting their nails ahead of key US jobs indicators and the long-awaited FOMC decision.
A little bearish bias emerged even after the upbeat ADP employment report, and more sellers piled in after the mostly pessimistic ISM manufacturing PMI and JOLTS jobs data. A sharp sell-off followed during the Fed's announcement, despite the central bank's decision to keep interest rates unchanged.
The lack of any hawkish hints in the statement likely spurred profit-taking among previous US dollar long positions, and the dollar was not helped by Powell's assertion that their next move is still very likely to be a rate cut.
Furthermore, the Fed's decision to slow the pace of reducing its bond holdings from its balance sheet was also seen as a form of policy easing.
As soon as the closing bell rang for US markets, the Bank of Japan (BOJ) was said to have made a covert intervention in the forex market, sending the USD/JPY pair falling more than 400 pips to the 153.00 handle before pulling back higher. .
Potential catalysts coming on the economic calendar:
- Building approvals in Australia at 1:30am GMT
- Japan Consumer Confidence Index at 5:00 AM GMT
- Swiss CPI and retail sales at 6:30 am GMT
- Job cuts at US Challenger at 11:30 AM GMT
- Initial US unemployment claims at 12:30 PM GMT
- Bank of Canada Governor Macklem's speech at 12:45 PM GMT
- US Factory Orders at 2:30pm GMT
This is expected to be a relatively quiet day in the currency market, as the economic calendar takes a break from high-level data releases and traders may be anticipating the Non-Farm Payrolls report on Friday.
Still next Swiss CPI report This could spur some intraday moves, given how the Swiss National Bank (SNB) recently surprised the markets with a rate cut. Next, the spotlight could turn to the US Initial Jobless Claims report which also tends to stimulate short-term price action from the USD pairs.
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