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Fed raises interest rate by 75bps, US stock market falls


US stocks tumbled heavily on Wednesday, witnessing fresh downside momentum and surrendered all of their daily gains after the Fed chief Powell said the Fed still has some ways to go in its policy cycle as rates could peak at higher levels than previously thought. The US Federal Reserve announced that it raised the policy rate by 75 bps to the range of 3.75-4% as expected and suggested policymakers would soon slow the pace of QT.

However, Fed Chair Jerome Powell’s speech spurred turmoil in the market as he said that a restrictive policy stance should stay for some time and the ultimate level of rates would be higher than previously expected. The comments revived the odds of a fifth 75 bps in December and weighed heavily on global equity markets. In the Eurozone, the Euro might be under pressure due to interest-rate differentials between the Fed and the European Central Bank (ECB), as the United States will enjoy rates at 4.50% by the end of 2022, while the Eurozone will likely be at 2%.

The S&P 500 and Dow Jones Industrial Average both slumped dramatically on Wednesday as the S&P 500 suffered its worst rout on a Fed decision day since January 2021. The S&P 500 was down 2.5% daily and the Dow Jones Industrial Average also dropped lower with a 1.6% loss for the day. All of the eleven sectors in the S&P 500 stayed in negative territory as the Consumer Discretionary sector and the Information Technology sector is the worst performing among all groups, losing 3.79% and 3.47%, respectively. The Nasdaq 100 meanwhile dropped the most with a 3.4% loss on Wednesday and the MSCI World index was down 1.7% for the day.

Main Pairs Movement

The US dollar advanced higher on Wednesday, regained upside strength and pared all of its earlier losses around the 112.00 area during the US trading session after Fed Chair Jerome Powell surprised with a hawkish speech. He mentioned that slowing the pace of rate hikes will become necessary at some point but interest rates in the United States would go higher than September’s projections. Therefore, the hawkish statement increased volatility despite a slightly dovish FOMC monetary policy statement.

GBP/USD declined lower on Tuesday with a 0.80% loss after the cable retreated from daily highs and holds lower ground near a one-week low amid renewed US dollar strength. On the UK front, the Bank of England is less likely to impress the GBP/USD buyers even by announcing the 75 bps rate hike amid the fears of the UK’s recession. Meanwhile, EUR/USD surrendered its daily gains and plunged 150 pips from weekly highs amid a stronger US dollar and a hawkish Federal Reserve. The pair was down almost 0.60% for the day.

Gold dropped with a 0.77% loss for the day after extending its intra-day side to the $1,632 area during the late US trading session, as Powell’s hawkish commentary undermined the precious metal. Meanwhile, WTI Oil advanced higher with a 1.84% gain for the day as oil price pares recent losses around the $89.00 area.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
EURECB President Lagarde Speaks16:05 
GBPComposite PMI (Oct)17:3047.2
GBPService PMI (Oct)17:3047.5
GBPBoE Interest Rate Decision (Nov)20:003.00%
GBPBoE Gov Bailey Speaks20:30 
USDInitial Jobless Claims20:30220K
USDISM Non-Manufacturing PMI (Oct)22:0055.5
GBPBoE Gov Bailey Speaks22:15