The dollar index (DXY00) on Wednesday fell back from a 2-1/2 week high and declined by -0.28%. The dollar gave up an early advance Wednesday and turned lower after the results of the FOMC meeting showed policymakers maintained their outlook for a total of 75 bp of interest rate cuts this year. Wednesday’s stock rally also reduced liquidity demand for the dollar.
US weekly MBA mortgage applications fell -1.6% in the week ended March 15. The purchase mortgage sub-index fell -1.2%, and the refinancing sub-index fell -2.5%. The average 30-year fixed rate mortgage rose +13 bp to 6.97% from 6.84% in the prior week.
The FOMC, as expected, kept the fed funds target range unchanged at 5.25%-5.50% for the fifth straight meeting and said it is waiting for greater confidence on inflation before cutting interest rates. The FOMC raised its 2024 GDP forecast to 2.1% from 1.4% in December and its 2024 core PCE inflation forecast to 2.6% from 2.4% in December. They also cut their unemployment rate forecast to 4.0% from 4.1% for 2024.
The FOMC maintained their projections for three 25 bp rate cuts this year as they kept their year-end 2024 fed funds rate target at 4.625%, unchanged from December. The FOMC also said it will continue reducing its balance sheet by as much as $95 billion per month.
Fed Chair Powell said it's appropriate to start easing "at some point this year" and that recent inflation data suggest the Fed was right to wait before cutting interest rates.
The markets are discounting the chances for a -25 bp rate cut at 17% for the April 30-May 1 FOMC meeting and at 82% for the meeting after that on June 11-12.
EUR/USD (^EURUSD) on Wednesday rose by +0.40%. The euro on Wednesday recovered from a 2-1/2 week low and posted moderate gains after the dollar weakened after the FOMC meeting. EUR/USD also found support after ECB President Lagarde said the ECB couldn’t commit to additional rate cuts after a likely rate cut in June. The euro Wednesday initially moved lower after German February producer prices fell more than expected, a dovish factor for ECB policy.
German Feb PPI fell -0.4% m/m and -4.1% y/y, weaker than expectations of -0.1% m/m and -3.8% y/y.
ECB President Lagarde said the ECB can't commit to further reductions in borrowing costs after a likely first rate cut in June, and "even after the first rate cut, we cannot pre-commit to a particular rate path."
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 5% for its next meeting on April 11 and 83% for the following meeting on June 6.
USD/JPY (^USDJPY) on Wednesday rose by +0.15%. The yen on Wednesday extended Tuesday’s sharp losses and posted a new 4-month low against the dollar. The yen is under pressure on negative carryover from Tuesday when BOJ Governor Ueda said BOJ policy would remain accommodative even after it ended its negative interest rate campaign. Wednesday's trading activity in the yen was muted with markets in Japan closed for the Vernal Equinox Day holiday.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 6% for the April 26 meeting and 18% for the following meeting on June 14.
April gold (GCJ4) on Wednesday closed up +1.3 (+0.06%), and May silver (SIK24) closed down -0.031 (-0.12%). Precious metals on Wednesday settled mixed. Lower global bond yields on Wednesday were supportive of precious metals. Also, Wednesday’s weaker-than-expected report on German Feb producer prices is dovish for ECB policy and supportive for gold. In addition, the ongoing geopolitical risks in the Middle East support safe-haven demand for precious metals. Gold prices jumped more than $15 an ounce in post-market trading Wednesday afternoon after the results of the FOMC meeting showed policymakers maintained their outlook for a total of 75 bp of interest rate cuts this year.
On the negative side, early strength in the dollar weighed on metals prices after the dollar index Wednesday rose to a 2-1/2 week high. Also, hawkish comments on Wednesday from ECB President Lagarde weighed on gold when she said the ECB couldn’t commit to further interest rate cuts after its June meeting.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
