Daily Market Report

The Federal Reserve decided to leave key interest rates unchanged at 5.25% as widely expected. This is the first pause after 15 months ending a streak of ten consecutive rate hikes. Investors were anticipating this decision, especially after the recent consumer price index figures which came out below expectations showing a slowdown in inflation. In the meantime, the FED signaled two more hikes to come by year-end. Most policymakers expect subdued growth to continue while Jerome Powell noted that the U.S. central bank remains committed to a 2% inflation target. On the other hand, the swaps market no longer expects a rate cut for 2023. The market reaction was hawkish following the decision, as stocks retreated while we have seen a rise in both the U.S. Dollar and bond yields.
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Powell added during the press conference that more efforts are needed to bring down inflation to desired levels and if the economy evolves as anticipated, the target of the fed funds rate is seen at 5.6% by the end of the year. Finally, the odds for a quarter-point rate hike in July’s meeting are sitting at 61%, however, Fed Chair Powell indicated that no decision was made yet on next month’s monetary policy which brings back uncertainty to the markets.


Looking at the reaction in the U.S. market, the major stock market indexes recovered from early losses. The Nasdaq closed 0.39% higher supported by NVIDIA and AMD’s positive performance, the S&P500 registered small gains of 0.08% while the Dow fell 0.68%.

In the FX market, the U.S. Dollar closed lower against its major peers, however, the Greenback is expected to remain steady after the FED kept the door open for more rate hikes later this year. Moreover, Gold couldn’t hold its previous gains as the yellow metal selling pressure is still intact, the focus today will be on the 1935-1930 support zone. A break below it should trigger another sell-off towards the next support level located at 1918 followed by 1907 in extension.
On the flip side, a daily close above the $1960 barrier is likely to increase the odds of a bullish reversal in the near term.

Later today, all eyes will be on the ECB rate decision. The central bank is expected to raise rates by 25bps from 3.75% up to 4.00% in an effort to fight inflation. President Lagarde’s press conference is scheduled 30 minutes after the rate decision and high volatility is likely in the EURUSD pair. In the U.S., both retail sales and unemployment claims are expected to have declined from 0.4% to -0.2% and from 261K down to 246K respectively.

Finally, the Bank of Japan is due to keep interest rates unchanged at -0.1%. Technically, the USDJPY pair remains in an uptrend with bulls challenging the 141.00 handle.


Economic Analyst
Amine Hiani

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