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First Rate Cut Thrusts Dollar Up

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USD

The dollar index, which measures the greenback against a basket of major currencies rose to a two-year high of 98.83 following the Fed's interest rate decision. The Federal Reserve lowered interest rates by 25 basis points as expected to set the new range between 2.00-25%, and the balance sheet run-off will end as of today. The mounting downside risks to the economic outlook and muted inflation urged the Fed to take such decision, aiming to boost inflation towards the 2% target and support the longest economic expansion in history. The Federal Reserve Chairman Jerome Powell indicated that this is not the start of a series of rate cuts, lowering the hopes of market participants of aggressive easing by the Fed in the coming months, but he also stated that it is not "one-and-done" and the Fed will monitor the economic data for further adjustments in monetary policy. The EURUSD dropped to a two-year low of $1.1032, the GBPUSD tumbled to a fresh two-year low of $1.2100, and the USDJPY edged higher towards a two-month high of 109.32.

Equities

Major US stock-index futures fell sharply as the Fed disappointed to insure aggressive easing which would drive the stock market to fresh highs. Since the last monetary policy meeting in June, the prospects of monetary policy easing enhanced investors' appetite towards the stock market, and major indices posted record highs. However, these indices gave up partial gains as following the Fed's monetary policy meeting. The Dow Jones Industrial Average futures dropped to a three-week low of 26695, the S&P500 futures declined to 2967, and the Nasdaq futures plunged to 7781.

Metals

Precious metal prices tumbled as the dollar soared following the Federal Reserve monetary policy meeting. The price of a gold ounce fell to a two-week low of $1405, the price of a silver ounce slumped to $15.99, and palladium declined to a ten-day low of $1508.

Oil

Oil prices drifted lower weighed down by Fed's disappointment and a rebound in US crude production. The Federal Reserve crushed investors' hopes of aggressive easing or a series of interest rate cuts. Meanwhile, the US Energy Information reported a drop in US crude inventories for the seventh-consecutive week to the lowest since November, but the US crude output bounced up from 11.3 to 12.2 million barrels per day, suggesting that the US is continuing forward with raising oil production levels. The West Texas Intermediate crude futures dropped to $57.41, and Brent futures plummeted to $63.87.

Major Economic Events

GMT Country Event Expectation Previous

11:00

UK

BoE Inflation Report 

 

 

11:00

UK

BoE Interest Rate Decision (Aug)

0.75%

0.75%

11:30

UK

BoE Gov Carney Speaks 

 

 

14:00

US

ISM Manufacturing PMI (Jul)

52.0

51.7

 Disclaimer 

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