Fed’s Surprise Rate Cut Mixes Economic Data in Global Markets (09.19.2024)

The Federal Reserve’s unexpected 50 basis point rate cut continues to reverberate across global markets. EUR/USD initially surged to monthly highs before pulling back to around 1.1120 as the Fed's less dovish forward guidance limited losses for the US Dollar. The Japanese yen weakened as investors weighed the Fed’s cautious approach and anticipated rate hikes from the Bank of Japan. Meanwhile, gold climbed above $2,570 per ounce, supported by expectations of further rate cuts and its appeal as a safe-haven asset. GBP/USD struggled to gain momentum, hovering around 1.3150, as expectations of a slower rate-cutting cycle by the Bank of England provided support. Silver rebounded to $31 as traders focused on upcoming economic data, including US unemployment figures and China's loan prime rate.

EUR/USD Eases After Fed Rate Cut, Focus Shifts to US and ECB Data

The EUR/USD pair is trading flat in the early European session on Thursday, having initially risen to monthly highs of 1.1189 following a significant rate cut by the Federal Reserve (Fed). The pair has since eased back to around 1.1120. On Wednesday, the Federal Open Market Committee (FOMC) initiated its easing cycle by lowering the Fed funds target range by 50 basis points (bps) to 4.75%-5.00%. However, the Fed's forward guidance was less dovish than anticipated, which helped limit losses for the US Dollar (USD). Fed Chair Jerome Powell noted, “it feels to me that the neutral rate is probably significantly higher than it was pre-pandemic.” The median long-term interest rate forecast was adjusted to 2.9% from 2.8%, with seven participants now projecting the long-term rate at or above 3.25%. The median unemployment projection for the end of 2024 was revised to 4.4%, up from 4.0% in June. Powell emphasized that the labor market has normalized, and a further slowdown is not desired by policymakers. Data from Eurostat revealed that the Eurozone Harmonized Index of Consumer Prices (HICP) rose by 2.2% year-over-year in August, matching expectations and the previous reading. Core HICP inflation held steady at 2.8% compared to the same period last year, matching forecasts. ECB policymaker Joachim Nagel stated that Eurozone inflation is still higher than desired, indicating that interest rates need to remain sufficiently elevated to address price pressures. Looking ahead, ECB Executive Board Member Isabel Schnabel is scheduled to speak later in the day. On the US economic front, weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Existing Home Sales data will be released.

In the pair, the first support level is at 1.1100. If this level is breached, the next supports to watch will be 1.1050 and 1.1000. On the upside, the first resistance is at 1.1150; if this level is surpassed, the next targets will be 1.1200 and 1.1250.

Yen Falls as Markets Weigh Fed's Caution and BoJ's Potential Hikes

The Japanese yen weakened beyond 143 per dollar on Thursday, pulling back from its highest level in 14 months, despite the US Federal Reserve's unexpected half-point interest rate cut. This shift occurred after Fed Chair Powell stated in the post-meeting press conference that the central bank is not in a hurry to ease policy and that such cuts should not be seen as the "new pace." Meanwhile, the Bank of Japan is anticipated to maintain its current policy on Friday but is likely to signal further interest rate hikes. Markets are betting on a potential rate increase in December, while an October hike remains uncertain. Investors are also looking ahead to Japan's August inflation data on Friday for more insights into the economy. Earlier this week, data revealed that the country’s exports rose less than expected in August, while imports saw their smallest increase in five months.

From a technical perspective, the first resistance level is at 143.60. If this level is surpassed, the next targets will be 144.60 and 145.30. On the downside, the initial support is at 142.50; if this level is breached, the next supports to watch will be 141.10 and 140.50.

Gold Prices Climb After Fed's Surprise 50 bps Rate Cut

Gold prices climbed above $2,570 per ounce on Thursday after pulling back from record highs in the previous session. This rise comes as markets digest the Federal Reserve's recent decision. On Wednesday, the Fed announced its first interest rate cut since early 2020, implementing a surprising 50 basis point reduction to combat softening inflation and a potential slowdown in the labor market. Fed officials indicated that the benchmark rate could drop by another half percentage point by year-end. This move is expected to boost demand for gold by lowering the opportunity cost of holding non-yielding assets. However, during a press conference, Chair Jerome Powell emphasized that the Fed is not rushing to ease monetary policy and noted that the dot plot projections for the federal funds rate should not be interpreted as a definitive policy plan.

Technically the first support level is at 2,550. If this level is breached, the next support levels to watch will be 2,525 and 2,500. On the upside, the initial resistance is at 2,585; if this level is surpassed, the next targets will be 2,600 and 2,620.

GBP/USD Struggles for Momentum as BoE Rate Outlook Limits Losses

The GBP/USD pair is finding support around the 1.3150 level on Thursday, having stalled its decline from the 1.3300 area, the highest point since March 2022. Spot prices have edged closer to 1.3200 during the Asian session, but a lack of momentum persists due to some buying of the US Dollar (USD), resulting in modest intraday losses. Meanwhile, expectations that the Bank of England's (BoE) rate-cutting cycle will be slower than that of the US continue to bolster the British Pound (GBP), limiting losses for the pair. The UK Consumer Price Index (CPI) report released on Wednesday indicated that inflation in the services sector accelerated more than expected in August, reinforcing speculation that the BoE will maintain rates at its September meeting later today. 

For GBP/USD, the initial support lies at 1.3190, followed by 1.3150 and 1.3100 below. On the upside, the first resistance is at 1.3265, with subsequent levels at 1.3300 and 1.3350 if the pair breaks above this resistance.

Silver Rebounds to $31 as Traders Eye Key Economic Data

On Thursday morning, silver rose to the $31 level, recovering losses from the previous day. The metal had been significantly impacted by profit-taking following the Fed's decision to cut rates by 50 basis points, which had initially triggered a brief rally. Today’s unemployment data will be crucial for silver, as it will provide insights into potential recession risks. Additionally, the loan prime rates to be announced by the PBoC tomorrow will also be significant, given that China is one of the largest importers of silver.

From a technical perspective, the first resistance level to watch is at 31.00. If silver breaks above this level, the next resistance levels to watch will be 31.50 and 32.10, respectively. On the downside, the initial support level is at 30.30, with subsequent support levels at 29.85 and 29.15.