Forex Today – 21/03: Fed Plans 3 Cuts, Stocks & Gold Up

The US Federal Reserve surprised markets yesterday by forecasting it would still make three rate cuts of 0.25% each over the course of 2024, leading to a rally in risky assets and a decline in the US Dollar.

1. The US Federal Reserve held a policy meeting yesterday at which it surprised markets by forecasting that it would still be likely to make 3 rates in 2024, and by raising its forecasts for inflation and economic growth in 2024. The Fed also sees longer-term rates a bit higher beyond 2024, while leaving its rate unchanged for a fifth consecutive meeting. Powell’s bottom line can be summarised as “we need to see more evidence inflation is coming down before we cut”. Markets reacted to this dovish surprise by sending all the major US stock indices, notably the S&P 500 Index, to new record highs, which the US Dollar was moderately sold. Trend traders will be very interested in being long of major US stock market indices, as the price action suggests they will continue to advance.
2. Following the Fed’s meeting yesterday, the Bank of England and the Swiss National Bank will be holding policy meetings today. Both banks are widely expected to leave their interest rates unchanged.
3. After the Fed meeting yesterday, Gold rose strongly to make a new all-time high, trading above $2,200 per ounce for the first time.
4. The Japanese Yen regained some of its earlier losses following its decline after the Bank of Japan raised its interest rate for the first time since 2007 on Tuesday, as the Japanese Finance Minister talked up the Yen by saying he was “watching the FX market with a high sense of urgency”. The USD/JPY currency pair is some way off the 4-month high it made yesterday, but there will still be traders interested in looking for long trades here.
5. In the Forex market, the Australian Dollar has been the strongest major currency since the Tokyo open today. The US Dollar has been the weakest. This puts the AUD/USD currency pair in focus today. When this pair advances it is a typical risk-on indicator.
6. Bitcoin recovered a lot of ground yesterday in line with the Fed-driven risk-on rally, but it still significantly far from its record high near $74,000.
7. In the commodities market, Cocoa futures rose yesterday to close at a new record high price. Trend traders will still be keen to be involved in this very long-running trend on the long side.
8. UK CPI (inflation) data released yesterday was lower than expected, showing a fall from an annualized rate of 4.0% to 3.4% when only a fall to 3.5% was widely expected.
9. There will be important data releases today of US, German, UK, and French Flash Services & Manufacturing data.
10. Yesterday’s release of New Zealand GDP data was a little worse than expected, showing a quarterly decline of 0.1% when an advance by the same amount was widely expected.
11. The earlier release of Australian Unemployment data was much better than expected, showing a decline in the unemployment rate from 4.1% to 3.7% when only 4.0% was expected.