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Dollar Falls as Fed Maintains Caution: Responses and Projections

Dollar Falls Fed

Dollar falls, Fed ends hiking. Japan policy shift impacts USD/JPY. Post-FOMC, US stocks rally; Google’s Gemini launch boosts.

In a post-event analysis of the Federal Open Market Committee (FOMC) meeting, the Federal Reserve (Fed) signaled the potential end to its hiking cycle, triggering improvements in risk appetite across various markets.

Fed Indicates Caution Amid Dovish Meeting

During the press conference, Fed Chair Jerome Powell stressed progress in addressing inflation, indicating that the central bank may have reached peak interest rates. Powell hinted at a potential easing in 2024, highlighting the central bank’s cautious approach. The committee is considering interest rate cuts, marking a notable shift in its stance on the tightening cycle. Economic projections revealed an expected 75 basis points worth of cuts in the coming year, leading to a surge in Fed funds futures market predictions of 150 basis points in cuts for 2024.

US Dollar (USD) Trends Downward

Following the FOMC statement, the US dollar experienced a bearish trend, dropping below the 200-day simple moving average (SMA) and breaching the critical 103.00 level. With the likelihood of another rate hike diminishing, the USD continued to sell off. Weaker US bond yields also had a global impact, causing sovereign yields in significant economies to move lower.

Dollar Falls as Fed Maintains Caution: Market Responses and Projections

USD/JPY Bearish as Japan Eyes Policy Shift

The announcement significantly impacted the USD/JPY pair, accelerating the bear trend. Traders speculated on a potential policy shift by the Bank of Japan (BoJ), considering raising rates in the first half of the following year. The weaker Dollar and anticipated yen appreciation position USD/JPY as a crucial currency pair for the remainder of the year and into 2024.

US Stocks Rally Despite Overbought Conditions

US equities defied overbought conditions, soaring higher after the FOMC meeting. Despite trading near all-time highs, US indices, including the S&P 500, showed resilience and completed a remarkable recovery since the August decline. The anticipation of interest rate reductions and favorable elements like the introduction of Google’s Gemini contributed to optimistic market sentiments.

While the S&P 500 is 2.3% away from its all-time high, potential resistance at 4818 looms large. The AI hype surrounding Google’s Gemini launch has contributed to positive momentum in the tech-heavy index. However, whether the index will reach an all-time high without a breather remains unanswered. Analysts are eyeing the 4607 level for signs of a potential pause before the next upward advance, though current momentum suggests the possibility of further gains from these extended levels.

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