The US Federal Reserve's hawkish rate cut stirred market sentiment and boosted the US Dollar late Wednesday. Policymakers surprised markets by supporting slower rate cuts in 2025, despite the expected 0.25% reduction. Positive remarks from Fed Chair Jerome Powell on inflation and Cleveland Fed President Beth Hammack's dissent against further rate cuts also strengthened the US Dollar Index (DXY).
As the US Dollar surged, riskier assets like commodities and Antipodean currencies weakened, and EURUSD and GBPUSD also dropped before consolidating on Thursday. Meanwhile, USDJPY rose to a monthly high after the Bank of Japan (BoJ) held its monetary policy steady and hinted at potential rate hikes in 2025.
Gold saw its biggest drop in three weeks, while BTCUSD experienced its largest decline since August. Crude oil continued its three-day losing streak, and equities ended the day in the red.
It's important to note that incoming President Donald Trump's pressure to raise the debt ceiling, along with ongoing geopolitical and trade war concerns, added to the post-Fed consolidation, putting the US Dollar bulls to the test ahead of the final readings of US Q3 GDP.
In addition to the broad strength of the US Dollar, weak inflation data from the Eurozone and dovish comments from European Central Bank (ECB) officials added further downside pressure on EURUSD. The Euro also faced headwinds from ongoing political turmoil in France and Germany.
Similarly, GBPUSD struggled due to mixed UK inflation figures and disappointing CBI trends total orders data. The Bank of England’s likely inaction, combined with growing economic concerns in the UK, continues to weigh on the Pound Sterling.
The Bank of Japan (BoJ) met market expectations by keeping its monetary policy unchanged. While the BoJ's statement and Governor Kazuo Ueda expressed economic optimism, they couldn't defend the Japanese Yen (JPY). Traders seemed unconvinced by the idea of additional rate hikes in 2025, leading to further upside pressure on the USDJPY.
Similar to USDJPY, both AUDUSD and NZDUSD struggled to capitalize on the US Dollar’s pause in further gains. The weakness can be attributed to concerns over China’s economy and disappointing New Zealand GDP, which overshadowed positive inflation expectations from Australia.
Meanwhile, USDCAD surged to its highest level since 2020, as the US Dollar’s strength combined with declining Crude Oil prices, a key Canadian export. Additionally, the dovish stance of the Bank of Canada (BoC), in contrast to the Fed’s hawkish rate cut, added further pressure on the Canadian Dollar.
The US Federal Reserve's hawkish move, along with concerns over China's economy and weaker gold demand in India, led to the biggest daily slump in bullion since late November. A confirmed "Double Top" bearish chart pattern also keeps XAUUSD sellers optimistic.
Crude oil faced additional pressure from a smaller-than-expected draw in US crude oil inventories, marking a three-day downtrend and continuing to struggle early Thursday.
Popular cryptocurrencies paused their rallies after the Fed's announcements, with Chairman Jerome Powell explicitly ruling out the central bank holding Bitcoin in its reserves. Bitcoin (BTCUSD) saw its biggest daily drop in four months, before bouncing off a week’s low. Ethereum (ETHUSD) also suffered a steep two-day decline, followed by modest gains near its weekly low.
After a volatile day and subsequent consolidation, market liquidity may remain low. However, upcoming events like the Bank of England’s (BoE) monetary policy announcement, final US Q3 GDP readings, weekly jobless claims, and monthly housing data will keep intraday traders engaged.
GBPUSD may struggle to recover further, as the BoE is expected to hold rates steady, and its prior hawkish comments failed to support the Pound. EURUSD might remain under pressure due to weak EU catalysts, while USDJPY could edge higher as the BoJ fails to convince JPY buyers.
The US Dollar may stay firm but could face difficulty surpassing its recent peak unless upcoming data strengthens the Greenback—something that's unlikely. This could allow Gold to recover some losses, but a sustained rebound will depend on XAUUSD holding above $2,618.
Equities and cryptocurrencies may trim post-Fed losses, but the recovery could be fragile ahead of Friday's US Core PCE Price Index, the Fed’s preferred inflation gauge.
May the trading luck be with you!
