S&P 500, gold strong on dovish Fed. What next for USD?
Explore how the S&P 500 and gold markets responded positively to the Fed's dovish stance, as investors anticipate future rate cuts. Find out the potential implications for the USD as monetary policy evolves.
Key points
- The FOMC left rates unchanged at 5.25 - 5.5%
- Fed Chair Powell signaled a September rate cut could be on the table
- Traders expect 75 bps of cuts by the end of the year
- Key US unemployment statistics Friday could change the Fed's outlook after the Unemployment rate hit 4.1% in June
S&P bounces back to $5,500
Following a July FOMC meeting where interest rates remained unchanged, the S&P 500 recovered, climbing back to $5,500. This upward movement, fueled by Powell's dovish comments, signals robust market resilience and paints a bullish future scenario.
Gold trades higher, nears new high $2,500
In response to the Fed's dovish stance and the anticipation of future rate cuts, gold prices surged, approaching a new high of $2,500. This rally demonstrates gold's continued appeal as a hedge against lowering interest rates and economic uncertainty.
Fed expected to cut 0.75% in 2024
Fed Funds futures from the CME now indicate a 67% chance of a cumulative 75bps rate cut by the end of 2024. This significant shift since the July FOMC implies a softening stance by the Fed, aligning with broader expectations for easing monetary policies amidst stable inflation and shifting employment metrics. Assuming the Fed acts in 25 bps increments, this would require a rate cut at each meeting left in 2024 to reach 75bps by December.
US dollar falls on lower interest rates
The USD has weakened as a result, particularly noticeable in the USD/CHF pair which dipped below 0.8800. This decline reflects the broader market anticipation of the Fed's potential easing cycle, impacting the dollar's strength against other major currencies.
Will the US dollar crash?
Amid prognostications of impending rate cuts by the Fed, questions arise about the potential for a significant downturn in the US dollar. Historical resilience suggests a crash may be unlikely, but the dollar's trajectory could depend heavily on upcoming economic data and Fed actions. The dollar also benefits from central banks globally acting in a similar fashion, with banks like the ECB and BoC already cutting rates.
Is US unemployment a problem?
Recent upticks in the US unemployment rate, now over 4%, have sparked concerns about the labor market's health. This development could influence the Fed's policy decisions, potentially hastening rate cuts to stimulate employment and economic activity.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.