By Asad Rizvi
Copyright brecorder
The Federal Reserve initiated its first action of the year by reducing interest rates by 25 basis points, which was anticipated by many.
In its announcement, the Federal Open Market Committee (FOMC) noted that recent economic data indicated that economic growth in the first half of the year has been average, characterized by a slowdown in growth, a softening job market, and a slight increase in the unemployment rate. However, inflation rates have increased and are on the rise.
The weakened labour market conditions prompted the Fed to lower its key interest rate, particularly following a significant downward adjustment to the payroll report.
The Fed’s projections indicate that achieving a 2 percent inflation target over the next couple of years will be challenging, though the growth forecast has been slightly adjusted upward.
By cutting rates, the Fed is likely attempting to strike a balance between bolstering growth and employment, which may delay a reduction in inflation.
While the future direction of policy remains somewhat ambiguous due to mixed signals, there are suggestions for two additional rate cuts in 2025.
However, the US Central Bank is expected to remain vigilant regarding the labour market outlook and inflation pressures, which could influence interest rate decisions during the upcoming FOMC meetings in October and December.
Following the Fed’s announcement, the US Dollar fell sharply as the market adopted a more dovish stance, dropping nearly 0.5 percent on average before partially recovering.
Some investors may have misinterpreted the Fed’s intentions, anticipating further two cuts this year, only to realize that future actions could be data-dependent.
The USD index responded with a rapid recovery within an hour. The greenback could face additional selling pressure if upcoming US economic data surprises with disappointing results.
I believe the labour market will remain a top priority for the Fed. Therefore, attention will likely continue to focus on global PMI indicators and Friday’s core PCE price index, which is the Fed’s favoured metric for assessing inflation levels.
In the meantime, the Japanese Yen briefly strengthened after two out of nine voting members of the Bank of Japan (BOJ) expressed support for a rate hike.
However, the JPY later softened after the BOJ’s Governor highlighted a more cautious approach during his press conference, noting that inflation remains below the 2% target. His remarks were interpreted as a balanced perspective, yet still carried a hawkish undertone.
As expected, the Bank of England (BOE) maintained its policy rate at 4%. It convenes every six weeks and will meet again on November 6 to determine its next policy direction, likely opting to hold steady until its December meeting.
Gold prices continue to rise, reaching a new all-time high of US$ 3,707. I believe this upward trend will persist, though at a slower rate, with a significant chance of a deeper correction.
Nevertheless, buyers are anticipated to enter at lower price levels.
Demand for gold is expected to rise, driving prices to new highs. Trading ranges may broaden between US$ 3,590 and US$ 3,740.
This week is expected to be data-rich. However, the market will likely pay close attention to the insights of new FOMC member Stephen Miran during his speech at the New York Economic Forum, as he has previously endorsed a more substantial rate cut.
On Tuesday, the US S&P Flash PMI for September will be released. Wednesday will see the announcement of new home sales figures, followed by the Swiss National Bank’s policy rate announcement on Thursday. Additionally, US Q2 GDP, Durable Goods, weekly jobless claims, and Existing Home Sales data will be unveiled. The most critical piece of data this week will be the US PCE report for August, set to be released on Friday.
WEEKLY OUTLOOK — Sept 22-26
GOLD @ US$ 3685— The next resistance level to monitor is US$ 3732 on break of US$ 3712. A breakout above this point would prompt a move towards US$ 3760. On the other hand, there is a strong downside risk if US$ 3632 is breached, which could lead to a decline towards US$ 3605 or even lower.
EURO @ 1.1746— Euro is anticipated to hold support at 1.1640, but it needs to rise above 1.1875 to reach 1.1925. If it doesn’t, falling below this support level could lead to a test of 1.1570.
GBP @ 1.3470— Pound Sterling may see a slight increase. But it must rise above the resistance level of 1.3590 to reach 1.3640. I see risk that it fail to rise there is a risk of a decline towards the support level near 1.3370-80 before the recovery.
JPY @ 147.97— The US Dollar is currently supported at 147.20, which is expected to hold until it reaches 148.60-80. A breakthrough here could push it up to 149.40. However, if it drops below the support level, it may test 146.70.
Copyright Business Recorder, 2025
