The
Fed has your back – at least that is what the US central bank wants
markets to think. FOMC officials just unanimously announced a 0.5%
interest rate cut (i.e. 50-bps) to shore up market confidence and keep
financial conditions accommodative.
The decision to lower rates came unexpectedly and outside of routine Federal Reserve meetings scheduled for this year. The last time the Fed delivered an emergency rate cut was in August 2008 amid the global financial crisis and collapse of Lehman Brothers, but follows the coordinated G7 meeting of global finance ministers earlier today.
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Although market participants have
increasingly priced in dovish FOMC action over recent trading sessions,
which comes in response to mounting coronavirus concerns, traders were
likely caught off-guard by the latest inter-meeting Fed interest rate
cut.
This is being reflected by the violent reaction in assets across the risk-spectrum such as the US Dollar, Dow Jones and gold.
DXY – US DOLLAR INDEX PRICE CHART: 1-MINUTE TIME FRAME (MARCH 03, 2020 INTRADAY)
USD
price action quickly cratered to session lows and pushed the US Dollar
Index (DXY) down to the 97.00 handle before the shock Fed rate cut
induced selloff stabilized.
Tuesday’s sharp drop in the US Dollar relative to major currency pairs is exacerbating recent downside recorded by the Greenback.
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After notching its strongest
reading in roughly three years, the broader US Dollar is now trading at
its weakest level since early January after its 2.9% drop over the last
eight sessions.
DJIA – DOW JONES INDUSTRIAL AVERAGE PRICE CHART: 1-MINUTE TIME FRAME (MARCH 03, 2020 INTRADAY)
The
US stock market – measured via the Dow Jones Index – welcomed news of
the surprise FOMC rate cut. The DJIA popped about 2.5% off of session
lows to the 27,000 price level subsequent to the unforeseen interest
rate cut from the Fed.
Wall StreetMIXED
Data provided by
of clients are net long.
Change in
Longs
Shorts
OI
Daily
-3%
-12%
-7%
Weekly
-13%
-6%
-10%
Although major equity indices
initially jumped back into the green, stocks have since edged back lower
as traders digest the news.
The
move back lower might be explained by overarching cynicism amongst
investors who are likely questioning the motivation behind the Federal
Reserve’s decision.
For
example, how bad is the economy if a surprise 0.5% rate cut is truly
warranted – particularly after already slashing the target Federal funds
rate by 0.75% since last July.
The
reaction in spot gold price action to the surprise Fed rate cut was
quite notable as well. Bullion bounced in excess of 2% after news of the
shock interest rate cut crossed the wires.
The
precious metal is now trading comfortably back above the $1,600 per
ounce price level following the bullish fundamental development. Gold
prices tend to rise as interest rates fall.
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