According to the Fed’s January 31st-February 1st meeting minutes released on Wednesday, Fed officials called for more monetary policy squeeze until there were “substantially” more indications of decelerating inflation. Some members favor a faster trajectory to force rates to restrictive higher levels as a tightening job market affects inflation.
After months of speculating against the Fed, and wagering that it will not be able to continue with its regime and would finally drop rates, market players appear to be giving up. In the weeks after the Fed’s decision, market players now anticipate that the central bank will raise interest rates at its next two meetings — in March and May – and have provisionally factored in a June rise.
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A June rate rise would place the Fed’s funds rate between 5.25% and 5.5%, exceeding the 5% to 5.25% range forecast by Fed in December. At the end of its last meeting on February 1st, the Federal Open Market Committee (FOMC) lifted its benchmark interest rate by 0.25% to a level of 4.5% to 4.75%.
Federal funds effective rate chart, source: FRED
Meanwhile, geopolitical worries plagued stock markets throughout the day, with the FOMC announcement causing more losses. China’s chief diplomat, Wang Yi, stated on Wednesday that China as a country is eager to expand strategic collaboration with Russia.
Yi also stated that their relationship would not be affected by external pressure. On the Russian end, president Vladimir Putin emphasized the importance of collaboration with China, adding that he is eager to receive Chinese President Xi Jinping’s visit to Moscow.
As a result, the stock market got hit by a sea of red. S&P 500 closed down 0.12%, the Dow Jones closed 0.26% in the red. finally Nasdaq closed in the green as the only major index with a 0.12% increase
Risk aversion dominated the market
The US dollar kept its hawkish tilt, increasing its rise at the close of the American session and after the FOMC meeting minutes were published. Towards the close of the American session, the EUR/USD approached the 1.0600 mark.
Earlier in the day, Deutsche Bank upped its projection for the European Central Bank (ECB) final rate to 3.75% from 3.25% earlier. Francois Villeroy de Galhau, a member of the ECB’s Governing Council, remarked that the central bank is not required to hike cost of borrowing at each meeting.
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The US dollar index, which measures the greenback against a basket of six competitors, rose to 104.500, a 0.38% increase. The GBP/USD exchange rate is about 1.2050. AUD/USD challenges the 0.6800 threshold, and USD/CAD fluctuates around 1.3550. Finally, USD/JPY stays flat, slightly below the 135.00 mark.
Brent crude clung dangerously to the $80 per barrel support on Wednesday, amid rising prices and interest rate concerns, as well as the Federal Reserve’s potential for further punishing against markets, prompted a fresh round of selling. Brent futures for April delivery finished lower $2.45, or 3%, at $80.60, following an intraday low of $80.48.
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The worldwide benchmark for oil is down 3% this week, continuing the 4% decline from the previous week. The March delivery futures for WTI, settled at $73.95 per barrel, down $2.41, or 3.2%, from its session low of $73.86 per barrel. The benchmark for US crude was also lower 3% week-to-date, following last week’s 4% decline.
Gold futures plummeted and settled 0.51% lower at $1,833 per troy ounce. Silver futures followed the decline 1.8%.