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Fed will Continue to Tighten with a Slowing Economy


US stocks declined on Tuesday, as the markets are bracing for hawkish talk at the Jackson Hole event after recent comments from officials convinced many investors the Fed will continue to tighten even with a slowing economy. Apart from that, data Tuesday showed sales of new US homes fell for the sixth time this year to the slowest pace since early 2016, while business activity contracted for a second straight month.  Moreover, quantitative tightening by the US central bank is set to kick into gear next month, presenting another potential headwind for equities.

The benchmarks, both S&P500 and Dow Jones Industrial Average fell and saw their third straight drop after swinging between gains and losses throughout the session on Tuesday. Seven out of eleven sectors stayed in negative territory, as Real Estate and Health Care performed the worst among all groups, plunging with 1.45% and 1.39% losses on daily basis respectively, while Energy outperformed all the other groups, surged with a 3.62% on daily basis. The Dow Jones Industrial Average fell 0.5%, the Nasdaq 100 was little changed, and the MSCI world index decreased 0.3% for the day.

Main Pairs Movement

US dollar declined on Tuesday and failed to extend its four straight rises after data showed U.S. private sector activity was weaker than expected in August, prompting bets the Federal Reserve may be less aggressive in its rate hiking cycle. The DXY index witnessed heavy selling transactions and fell to a daily low level below 108.1 in the early US trading session, then rebounded to oscillate in a range from 108.4 to 108.7 level.

The GBP/USD surged by 0.59% daily for the day, as US economic data reignited recession fears. The cables observed fresh upbeat traction during the early US trading session following a drop in greenback caused by dismal US data. The pair touched a daily high level above 1.187, then lost bullish momentum and volatile between 1.185 and 1.181. Meantime, EUR/USD surged and touched a daily high level above 1.001. The pair advanced by 0.27% daily.

Gold surged and ended the six consecutive day drop on Tuesday, as the US dollar plunged across the board. XAU/USD gained bearish momentum and touched a daily high of $1,754 marks after an announcement of US dismal data, which may slow the pace of rate hiking.

Economic Data  

CurrencyDataTime (GMT + 8)Forecast
USDCore Durable Goods Orders (MoM) (Jul)20:300.2%
USDPending Home Sales (MoM) (Jul)22:00-4.0%
USDCrude Oil Inventories22:30-0.933M