Fri, Jun 24, 2022 @ 22:19 GMT
HomeContributorsFundamental AnalysisMarkets Digest Fed Message as Dollar Corrects; Aussie Drops on Chinese Downgrade

Markets Digest Fed Message as Dollar Corrects; Aussie Drops on Chinese Downgrade

The US dollar gave back some of its gains versus its major counterparts such as the euro, the yen and the British pound after the Fed signaled the previous day it was planning to raise interest rates one more time this year. The Fed also announced that in October it would start to slowly roll back some of the stimulus it injected in the form of Quantitative Easing; the first major central bank to do so since the financial crisis of 2008.

The euro rose back above the 1.19 level against the dollar after dipping below that level in the aftermath of the Fed’s announcement. The pair was last trading at 1.1916. A speech by Mario Draghi in Frankfurt mostly made reference to possible financial imbalances and less on monetary policy. Tomorrow’s Eurozone flash PMI numbers are likely to prove the highlight of the week for the euro.

Dollar/yen also gave back some of its Fed-related gains but managed to still trade above the 112 mark at 112.30. The Bank of Japan kept its QE policy unchanged today but there was a slightly dovish surprise as one of the two new board members advocated doing more stimulus so that the 2% inflation would be hit in future years.

The pound also did well as it reclaimed the 1.35 mark against the greenback. Pound traders are eagerly waiting for an important policy speech by the UK Prime Minister Theresa May on Brexit tomorrow. The euro gained slightly against the pound to reach 0.8821.

One of the currencies that failed to bounce back against the dollar from its post-FOMC losses was the Australian dollar. A downgrade of China by S&P seemed to hurt the aussie, despite promises of higher interest rates by the RBA governor earlier in the day during a speech. The aussie was at 0.7922 versus the US dollar against 0.81 before Wednesday’s Fed announcement.

There was relatively upbeat economic news out of the United States as weekly jobless claims declined to 259 thousand compared with 282 thousand the previous week, while the Philly Fed manufacturing index for September climbed to 23.8 compared to expectations it would decline to 17.2 from 18.9 in August.

In commodities, gold continued to decline after breaking below the psychologically important $1300 level as it dropped to $1290 an ounce; a near 4-week low. A stronger dollar and the prospect of higher interest rates hurt the yellow metal, while risk assets were also unfazed by the prospect of tighter policy, mitigating the demand for safe havens. Oil gained and the front-month US futures contract was trading around $50.50 a barrel.

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