Markets breathed a sigh of relief. Stocks up, the dollar down

28.07.2022 09:00|Conotoxia Ltd Analyst Team

As expected by investors, the US Federal Reserve decided to raise the range for the federal funds rate by 75 basis points to 2.25-2.50 %, the highest since 2019. This was the fourth consecutive interest rate hike in the US.

Prior to the announcement of the decision, it seemed important not only the scale of the hike, but also what Jerome Powell, chairman of the US central bank, would later tell reporters.

The Fed chief said that ongoing hikes in the target range would be appropriate and that he was prepared to adjust the stance of monetary policy if risks arose that could hinder the FOMC Committee's goals. During the press conference, Powell added that he could not predict the extent of monetary policy action for next year and that subsequent decisions would depend on data. He added that the central bank will look for a moderately restrictive level by the end of the year, implying a level of 3% to 3.5% for the target range for the federal funds rate. Most important seems to be the statement that it will soon become appropriate to slow the pace of hikes once the Fed assesses how the cumulative monetary policy adjustments to date are affecting the economy and inflation.

This is somewhat consistent with what we mentioned yesterday, that the Fed may end the cycle at 3.5 %, with three meetings left before the end of the year. Thus, hikes of 75 basis points may have come to an end, and we will already see monetary tightening of 25 basis points each meeting, or one of 50 points and two of 25%.

Financial markets may thus begin to discount the end of the US interest rate hike cycle or at least a longer pause in monetary tightening. As a result, the U.S. dollar may have weakened yesterday, and stock market indexes or cryptocurrencies may have gained in value. On Wednesday, the Dow gained 1.37%, the S&P 500 rose 2.62% and the Nasdaq rose 4.06%. All S&P sectors posted gains, led by communication services, technology and consumer spending. Investors are now awaiting Q2 GDP data for clues on the state of the US economy. The dollar index, in turn, weakened below 106.5 points, approaching its lowest levels in almost a month.

 

Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Like the article?
Share it with friends!


See also:

Jul 27, 2022 11:34 am

Investors wait for the Fed - are we closer to the end of the cycle?

Jul 26, 2022 9:54 am

Walmart confirms consumer problem

Jul 25, 2022 12:11 pm

Hot week of July on financial markets

Jul 13, 2022 9:59 am

Oil falls below 100 USD per barrel

Jul 12, 2022 9:10 am

The dollar does not give up

Jul 11, 2022 11:47 am

Euro is getting closer and closer to parity against the dollar

76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trading on CFDs is provided by Conotoxia Ltd. (CySEC no.336/17), which has the right to use the Conotoxia trademark.