Matching the previous forecast, the U.S. Federal Reserve increased interest rates by 0.25 percentage points this past Wednesday. The market players’ attention was primarily focused on the statements of the central bank’s officials. Against this backdrop, the dollar fell as Federal Reserve Chairman Jerome Powell hinted at a possible pause in monetary policy tightening in days to come.
That being said, investors are left pretty disappointed by the statements that inflation levels are still quite high, so we shouldn’t expect any drop in rates in the short run.
Meanwhile, a worrying backdrop explained by the banking crisis remains. As big banks are taking over smaller institutions that went bankrupt, the risks extend to the wider areas of the banking sector, causing concern among investors.
“I believe that Powell may have been a little more radical in raising the bar for further tightening unlike what others might have anticipated,” said Rob Carnell, ING's Regional Head of Research in the Asia Pacific. "It looks like they are paying quite a bit of attention to other pieces of economic data when adopting their decision about further rate hikes."
ING expects 100 basis points of cuts by the end of the year.
Aside from that, treasury bond futures along with federal funds futures went up following the Fed meeting, which implies a 52-percent chance of a rate cut in July. In the meantime, the 2-year note yield rose to 3.8%.
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