Market Response to FOMC Statement
The dollar index (DXY00) faced choppy waters on Wednesday, ultimately retreating from a 2-1/2 week high and sliding by -0.28%. This slump occurred following the revelation that the Federal Open Market Committee (FOMC) opted to maintain their stance on a total of 75 basis points (bp) interest rate cuts for the year. Furthermore, the stock market’s buoyancy in the wake of the FOMC meeting added to a waning demand for the greenback.
US Mortgage Applications Dip
In a separate development, US weekly MBA mortgage applications reported a decline of -1.6% for the week ending March 15. Both the purchase mortgage sub-index and the refinancing sub-index experienced setbacks, clocking in drops of -1.2% and -2.5%, respectively. Meanwhile, the average 30-year fixed-rate mortgage saw an increase of +13 bp, climbing to 6.97% from the previous week’s 6.84%.
Insights from the FOMC Meeting
As anticipated, the FOMC opted to maintain the fed funds target range at 5.25%-5.50% for the fifth consecutive meeting. The Committee emphasized the need for a more robust assurance on inflation before considering interest rate adjustments. Notably, the FOMC revised its 2024 GDP forecast to 2.1% from the previous estimate of 1.4% in December. Moreover, projections for 2024 core PCE inflation were revised up to 2.6% from 2.4% in December, while the unemployment rate forecast for 2024 was lowered to 4.0% from 4.1%.
The FOMC reaffirmed their outlook for three 25 bp rate cuts throughout the year, keeping the year-end 2024 fed funds rate target stagnant at 4.625%. Additionally, the Committee signaled ongoing balance sheet reductions of up to $95 billion monthly.
Market Sentiment and Projections
Fed Chair Powell signaled a cautious approach, mentioning that the timing for easing measures would be appropriate at some point this year. Recent inflation metrics bolstered the Fed’s decision to bide their time before making further adjustments. Market speculations are rife, with probabilities for a -25 bp rate cut pegged at 17% for the upcoming FOMC meeting on April 30-May 1 and soaring to 82% for the subsequent meeting on June 11-12.
Global Currency Movements
Across the pond, the Euro exhibited resilience, with the EUR/USD pair (^EURUSD) logging a +0.40% uptick post-FOMC meeting. The European Central Bank’s (ECB) stance on rate cuts echoed after ECB President Lagarde’s caution against committing to further reductions following a potential cut in June. Conversely, the yen saw a downward trajectory, with USD/JPY (^USDJPY) advancing by +0.15%, hitting a new 4-month high against the Japanese currency amidst BOJ’s accommodative policy stance.
Precious Metals Performance
Gold and silver markets witnessed divergent outcomes, with April gold (GCJ4) inching up by +0.06% and May silver (SIK24) dipping -0.12%. The precious metals sector responded to varied cues, including lower global bond yields, dovish signals from the ECB post German PPI data, and ongoing geopolitical tensions. Post-FOMC meeting results, gold prices soared over $15 in post-market trading following confirmation of sustained interest rate cut projections.
However, the metals complex faced headwinds from a resurgent dollar and wary comments from ECB President Lagarde, dampening gold’s appeal amid uncertainty over future rate moves.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
