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Market awaits Fed rate decision, expects another 75bps hike


US stocks declined on Tuesday, coming under bearish pressure and suffered daily losses as traders are bracing for a hawkish Federal Reserve that’s expected to boost rates to levels not seen since before the 2008 financial crisis. The US Federal Reserve will announce its monetary policy decision during the US trading session on Wednesday, which is expected to hike rates by at least 75 bps given stubbornly high inflation. The Fed could step up its policy rate by 100 bps, given the tight labour market and robust retail demand. As for now, the Fed’s foremost priority is to bring price stability into the economy and could not let high inflation destroys the confidence of consumers in the economy.

In the Eurozone, European Central Bank (ECB) President Christine Lagarde has cleared that the central bank is committed to bringing down the price pressures in whatever it takes, which might scale up its interest rates further.

The benchmarks, S&P 500 and Dow Jones Industrial Average both retreated lower on Tuesday as the slide in equities pushed the S&P 500 more than 10% below its Aug. 16 high. The S&P 500 was down 1.1% on a daily basis and the Dow Jones Industrial Average also dropped lower with a 1.0% loss for the day. All eleven sectors in S&P 500 stayed in negative territory as the Real Estate and the Materials sectors are the worst performing among all groups, losing 2.57% and 1.90%, respectively. The Nasdaq 100 meanwhile declined the least with a 0.9% loss on Tuesday and the MSCI World index was down 0.9% for the day.

Main Pairs Movement

The US dollar advanced higher on Tuesday, witnessing upside strength and refreshed its daily top above 110.2 level in the late US trading session amid the souring market mood. The higher US government bond yields have provided support to the safe-haven greenback, which soared to its highest in fifteen years ahead of the US Federal Reserve announcement on Wednesday.

GBP/USD suffered daily losses on Tuesday with a 0.47% loss as the market braces for the US Federal Reserve’s (Fed) monetary policy announcement. On the UK front, PM Lizz Truss unveiled a slew of policy measures that included a cut in the stamp duty. Meanwhile, EUR/USD remained under pressure and extended its intraday slide towards the 0.9960 area amid the stronger US dollar across the board. The pair was down almost 0.50% for the day.

Gold was facing selling pressure after retreating lower to daily lows around the $1,662 mark during the US trading session, as the expectations of a bigger-than-expected Fed rate hike have acted as a headwind for the safe-haven metal. Meanwhile, WTI Oil dropped further with a 1.08% loss for the day and touched a daily low near the $83 area as the sentiment surrounding surging inflation and tighter monetary policy continues to weigh on the oil price.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
EURECB President Lagarde Speaks01:00
USDExisting Home Sales (Aug)22:004.7M
USDCrude Oil Inventories22:302.321M