Fed’s Rate Cut, Precious Metals Surge, and Currency Volatility (23-27 September)

Explore the week’s key market movements, including the impact of the Fed's rate cut, precious metals rally, and global currency fluctuations.

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Gold and Silver 

Considering disappointing economic data from China raising demand concerns, silver received support from the Federal Reserve's 50 basis point rate cut and escalating tensions in the Middle East, allowing it to close the week on a positive note. A similar situation unfolded for gold, which reached new record level, 2600, following the Fed's first rate cut in four years and the rising tensions between Israel and Lebanon. Comparing the performances of gold and silver, it was a week where silver slightly outperformed gold.

The Dollar Index 

Last week, the Federal Reserve enacted a 50-basis point interest rate cut, representing its first reduction in four years. While market expectations were firmly aligned with a rate cut, there was ambiguity regarding its scale. Despite a 65% likelihood of a 50-basis point cut, the dollar index subsequently dropped to a 14-month low following the announcement. Market participants are now pricing in an additional 50 basis points of cuts by year-end. However, during the post-decision press conference, Chair Powell adopted a cautious stance, advising against assumptions of a consistent pace of monetary easing moving forward. He emphasized that the Fed is not in a hurry to lower rates further and indicated that the era of ultra-low interest rates is likely concluded, with expectations for a higher neutral interest rate compared to historical levels. Despite unexpectedly positive unemployment data and stronger retail sales figures released this week, the dollar index registered a substantial decline last week due to the above-mentioned developments.

Forex Market 

This week, we received inflation data from the Eurozone. The Consumer Price Index (CPI) came in line with expectations on a year-over-year basis, while showing a 0.4% decline compared to the previous month. Additionally, the Harmonized Index of Consumer Prices also matched expectations and remained stable. Following the ECB's interest rate cut last week, Kazaks indicated that further rate cuts might be possible but emphasized that inflation risks still exist and should be monitored. Nagel stated that inflation remains higher than anticipated, while Makhlouf noted that future rate decisions will depend on upcoming economic data. Given the expectation of one more rate cut by the end of the year, the importance of the forthcoming economic data releases in Europe has significantly increased. 

This week was eventful for the British Pound. On Wednesday, we received the CPI data, which showed that the annual inflation rate remained steady at 2.2% in August, with a monthly increase of 0.3%. On Thursday, the Bank of England (BoE) decided to keep interest rates unchanged by a vote of 8 to 1. According to these developments, market expectations for BoE rate cuts have been shaped, anticipating one cut in both November and December, followed by five more in 2025. Additionally, the BoE's decision to reduce its bond stock by £100 billion has been a significant factor contributing to the Pound's strong performance this week following the decision to maintain rates. 

Rising unemployment figures, along with weakening production and consumer data, have raised serious concerns about China's economic outlook. This week, the PBoC announced that loan rates remained unchanged, continuing to hold at record lows following an unexpected cut in July. Additionally, the central bank injected CN¥568 billion into the market through reverse repos to balance maturing MLF loans. The bank will roll over MLF loans on September 25, postponing changes to enhance the influence of short-term rates on market dynamics. Amid these developments, the offshore yuan strengthened this week, benefiting from the weakness of the US dollar. 

Following comments from several RBA governors emphasizing that it is too early for interest rate cuts given the persistently high inflation, market expectations for rate reductions from the RBA have been pushed back. Some economists anticipate the first cut as early as December, while others expect it may not come until the second quarter of 2025. Meanwhile, recent data indicate below-trend growth in the economy and a decline in the Leading Index, with Matthew Hassan noting that this trend may continue into the first half of 2025. The weakness of the US dollar, along with a rally in commodities like gold, copper, and oil throughout the week, positively impacted the Australian dollar, which tested nine-month highs. 

Last week, we received New Zealand's growth data, which showed that the economy contracted below expectations. However, the positive impact of rising milk prices and a weakening US dollar helped the New Zealand dollar close the week on a positive note. 

Last week’s Canadian inflation data revealed that inflation reached its lowest level since February 2021, driven by falling oil prices, hitting the Bank of Canada’s target of 2%. This development supported Governor Tiff Macklem's view that rapid interest rate cuts may be necessary due to concerns about the labor market and potential declines in oil prices, with the market now anticipating a 50-basis-point cut. Despite these developments, the Canadian dollar strengthened slightly against the weakening US dollar to close the week. 

Japan recently concluded a week marked by significant economic data releases, including the crucial interest rate decision. Inflation figures showed increases on both a monthly and annual basis, driven by rising service prices, while import and export numbers were balanced. Following this, the interest rate was held steady on Friday at its highest level since 2008, aligning with market expectations. This decision suggests that, despite some hawkish comments from BOJ members, the central bank will take a more cautious approach by closely monitoring economic data before making any decisions.

Stock Market 

Last week, U.S. markets experienced a positive trend following the Federal Reserve's first interest rate cut in four years. The S&P 500 and Dow Jones reached new historical highs, while the Nasdaq saw an increase of nearly 2%. Key sectors leading the rise included banking, transportation, industrials, and technology, while the biotechnology sector was one of the few to post losses. 

Looking at individual stocks within the technology sector, Meta gained 8%, Google rose 5%, and Microsoft increased by 3.5%. In the financial sector, JPMorgan added 1.3%, while in retail, Amazon gained 2.74%. Conversely, Walmart and Adobe were among the few companies that experienced losses.