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The FOMC policy announcement strongly affected FX markets with major currencies trading weaker relative to the dollar. In emerging markets the move had quite different impacts with for example the USD/TRY pair trading higher, but similarly to the previous days and ending the day up by less than one per cent, while the USD/MXN pair jumped by 1.8 % that day, reaching the highest level since late March.
Major stock market indices around the world also reacted with a noticeable downside in many markets. While the China A50 index once again moved lower, in the trading session on Thursday night the losses following the FOMC announcement were quickly offset as the market briefly turned bullish. The Volatility Index VIX turned once again higher, supported by the market turmoil, but in the end the upside was rather restrained as the index traded still around the same levels as seen around these dates in the previous month.
On Thursday from the US data on weekly jobless claims can be expected, which could further decline below the 376 thousand initial claims seen last week, thus towards levels seen before the pandemic. Also the leading indicators and the Federal Reserve Bank statistics will be released. Later in the Asian-Pacific trading session Japanese CPI statistics for May will be released.
The EUR/USD pair strongly declined on Wednesday with some smaller further downside seen even by Thursday morning, pushing the rate below 1.20 to a new eight-weeks low following the FOMC policy announcement. While the Federal Reserve did not make any changes to either rate or asset purchase program, the indication that with rising inflation expectations the Fed would be starting to think about changing its dovish stance already affected the markets. Previously it was expected that rates would stay unchanged until at least 2024, but now it seems the central banking organisation would be considering earlier changes to its monetary policies.
Import and export prices data for May showcased the rising inflation with prices for imports rising by 1.1 % and exports by 2.2 % both on a monthly basis, and significantly exceeding expectations. On an annual basis import prices were up by 11.3%, which is still lower than the compounded monthly price change.
On Thursday the eurozone consumer price index (CPI) will be published, with expectations that the monthly rate of inflation will remain below the 0.6 % seen last month.
Gold prices also strongly reacted to the press conference of the FOMC, where investors gauged from a expectations that the ultra-dovish monetary policy could come to an end sooner than previously anticipated. The daily decline in gold prices was the biggest since late February, with prices in the spot market down by more than 3 % since the beginning of the week.
Silver and platinum prices also ended the day clearly lower, while palladium spiked higher on Wednesday, only to retrace from these gains over the course of the night from Wednesday to Thursday.
The decline in gold prices was not just tied to the strengthening of the dollar, as the precious metal also moved again lower for example against the euro, with Gold (EUR) ending the day down by a bit more than one per cent. Expectations of now higher rates were clearly seen for example in the 10-year US Treasury Note benchmark, which rose by around 10 basis points following the Fed announcement. Higher rates raise in theory the opportunity costs of holding non-yielding precious metals like gold.
Oil prices reached intraday yet another post-pandemic high, only to settle lower for the first time in over the past five trading days. Some time after the Energy Information Administration (EIA) announced another significant draw from crude stockpiles according to its statistics, this time to the tune of 7.4 million barrels, so a bit below the 8.5 million barrels draw announced by the API earlier, prices briefly spiked higher, only to come down again and extend the downwards trend towards the end of the day, following the sentiment also seen in equity markets following the FOMC announcement.
Gasoline inventories were once again announced to be higher, this week by only 2 million barrels, compared to the 7 million barrels build reported in the week before.
Major US stock market indices settled clearly lower after the FOMC policy announcement, which indicated a potential for rate hikes as soon as 2023. Especially the US 30 index, which already underperformed in the past few days, extended its losses, falling to the lowest level in four weeks, while the US 500 index traded by Thursday morning around the 4,200 mark, so just around 1.6 % down from the all-time high reached on Tuesday.
A noticeable downside continued to be seen in the stock price of some of the companies involved in breakthrough COVID-19 vaccines like BioNTech (-6.90%), Novavax (-6.12%) and Moderna (-1.79%).
One sector potentially seen benefitting from higher rates could be the banking sector (US Banks ETF +1.01%), with stocks of commercial banks like US Bank (+0.14%) and Bank of America (+0.86%) closing moderately higher in the otherwise rather bearish market.
In terms of earnings for Thursday the quarterly results from Adobe and Kroger can be expected.
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