Markets never sleep, but there are defining moments for them that dictate the direction of short-term trading. We are faced with such an event this evening, with the Federal Reserve almost certainly set to make its first interest rate cut in four years, marking the start of a new monetary cycle. Remaining unresolved are questions about the scale of the move and bankers’ plans for the upcoming quarters. Answers to these issues will be received in a few hours, and investors will be forced to adjust their positions to the new circumstances. Let the volatility increase!
USD under pressure, CHF and JPY gaining
However, Wednesday’s trading is largely calm in the major part of the currency market, which can be considered a buildup before the upcoming increased volatility after 8 pm. Nonetheless, attention should be paid to at least three aspects. First and most importantly, the dollar remains relatively weak, which can easily be linked to current investor expectations for a 50 basis points cut at today’s FOMC meeting (interest rate contracts indicate a 2/3 chance of such a move). The USD weakness can be seen on EUR/USD, which is not particularly far from 1.113 $, staying close to 3-week highs. Similarly (and even more vividly), the dollar index (“green” against 6 major currencies) is approaching the psychological round level of 100 for the first time since July 2023. The dollar is also losing against many emerging market currencies, so the USD/PLN rate remains below 3.84 PLN. Despite these seemingly clear market signals, some signs of uncertainty among investors can be noticed. Today’s gains of so-called safe havens, mainly CHF and JPY (which is slowly returning to this group), should be recognized as such. EUR/CHF is heading near last week’s lows at 0.938 ₣, and EUR/JPY has stopped the correction that moved this pair away from this year’s lows at 155 ¥. Although the majority of the market is convinced of a substantial move by the Fed, it does not hurt to at least partially secure capital in safe-haven assets.
Uncertain stock markets, oil roller coaster, and gold on the rise
Uncertainty is also noticeable in the capital market. Yesterday Wall Street closed slightly higher (S & P 500 + 0.03%, but this index is close to record levels, and the tech-heavy Nasdaq gained 0.2%). The Asian session exhibited significant differences, from a decline in India (BSE Sensex -0.16%) through a cosmetic increase in Australia (S & P ASX + 0.04%), decent gains in Shanghai and Tokyo (both + 0.49%), to strong performances in Hong Kong (Hang Seng + 1.37%). Finally, Europe is correcting after Tuesday’s gains. Nearly all European stock exchanges are seeing red before 2 pm, from Frankfurt’s DAX barely holding its opening level to London’s FTSE100 and Amsterdam’s AEX (-0.6%). After yesterday’s fantastic session on the Warsaw Stock Exchange (WIG20 + 1.75%), bears have also settled in Warsaw today, with the main index correcting itself by 0.6%. The oil market remains turbulent, with the price of Brent crude reaching 2-week highs at 74 $ yesterday morning, only to fall nearly 2.5 $ lower, and then bounce back again to around 72.5 $. The escalating tensions in the Middle East and uncertainty about the scale of economic development in the world’s major economies are not helping to stabilize the situation. Finally, gold is back on the rise, with the price of the royal metal looking towards 2580 $/oz again.
Author: Adam Fuchs, currency analyst at Walutomat.pl
The post “A new monetary cycle is coming” first appeared on CEO Magazine.
Source: https://ceo.com.pl/nadchodzi-nowy-cykl-monetarny-89440
