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The Fed’s Rate hikes to Control Inflation Weighed on the Market Sentiment


US stocks declined for the first time in four days as investors assessed the outlook for the path of interest-rate hikes after a minute of Federal Reserve’s last meeting noted officials saw risks from tightening more than necessary. Moreover, the stock market rallied on signs of peaking inflation and an earnings reporting season that saw four out of five companies meeting or beating estimates. However, prospects of the Fed continuing to raise rates to cool inflation and tip the economy into recession have weighed on market sentiments.

The benchmarks, both S&P 500 and Dow Jones Industrial Average slid on Wednesday, as Fed minutes note it may be appropriate to slow increases. Ten out of eleven sectors of S&P 500 stayed in the negative territory, as Communication Service and Material sectors performed worst among all groups, falling 1.40% and 1.85% on daily basis respectively. Energy is the only section in positive territory, rose with a 0.81% gain for the day. The Dow Jones Industrial Average decreased 0.5%, the Nasdaq 100 dropped 1.2%, and the MSCI World index fell 0.6% on Wednesday.

Main Pairs Movement

The US dollar little advanced on Wednesday, as the minutes from Federal Reserve’s July meeting, showed that Fed officials are concerned the US central bank could raise interest rates too far as part of its commitment to get inflation under control. The DXY index witnessed fresh transactions during the UK trading session and touched a daily high level of nearly 106.9 level, however, paring most gains and reached a daily low level below 106.4 after the FOMC minute.

The GBP/USD dropped with a 0.40% loss on daily basis after a volatile day, as UK’s 40-year high inflation propelled recession woes and the minute of the Federal Reserve. The cables were under heavy selling pressure during the UK trading session amid a pessimistic market mood towards economic growth. However, GBP/USD rebounded after the Fed minute and oscillate around the 1.2045 level. Meanwhile, EUR/USD touched a daily-high level above 1.020 after the minute by Fed. The pair rose 0.09% for the day.

Gold dropped on Wednesday, and remains under pressure around a two-week low, down for the fourth consecutive day. XAU/USD edged lower since the UK trading session as a strong greenback across the board and touched a daily low below $1,760 in the middle of the US trading session.
WTI and Brent oil advanced for the day, rising 1.83% and 0.77% respectively.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
AUDEmployment Change (Jul)09:3025.0k
EURCPI (YoY) (Jul)17:008.9%
USDInitial Jobless Claims20:30265k
USDPhiladelphia Fed Manufacturing Index (Aug)20:30-5.0
USDExisting Home Sales (Jul)22:004.89M