Forexlive Americas FX news wrap: Fed pushes back against rate hike fears

• FOMC decision: Interest rates unchanged, Fed cites lack of further progress on inflation
• Powell opening statement: Further progress on inflation not assured, path uncertain
• Powell Q&A: I do think policy is restritive and weighing on demand
• The full statement from the May 2024 FOMC rate decision.
• What we learned from Powell and the Federal Reserve interest rate decision
• US April ISM manufacturing 49.2 vs 50.0 expected
• JOLTs job openings for March 8.488M versus 8.686M estimate. Lowest since Feb 2021
• US March construction spending -0.2% versus +0.3% expected
• US April ADP employment +192K vs +175K expected
• ECB’s de Cos: Eurozone inflation will fluctuate this year then fall to 2% next year
• Atlanta Fed GDPNow Q2 growth estimate dips to 3.3% from 3.9%
• US weekly EIA oil inventories +7265K vs -1100K expected
• US April S&P Global final manufacturing PMI 50.0 vs 49.9 prelim
• Quarterly refunding announcement: Will increase TIPS and bill auction sizes

Markets:

• Gold up $29 to $2314
• US 10-year yields down 5.4 bps to 4.63%
• WTI crude oil down $2.83 to $79.10
• Bitcoin down 4.4%
• S&P 500 down 0.1%
• NZD leads, USD lags

The market was anxious ahead of the FOMC decision, particularly in light of Monday’s hot wage data. That was compounded by some poor earnings numbers from chipmakers, Starbucks and CVS.

Still, the US dollar retraced some of the gains from earlier in the week before settling into a range ahead of the announcement. The statement was largely a non-event but didn’t contain any kind of hawkish shift and surprised somewhat with a QT taper of $35B instead of $30B expected.

The larger round of dollar selling came after Powell pushed back against repeated attempts to bait him into a hawkish shift. He made it clear that the Fed’s base-case is either to cut rates or wait longer for greater confidence in inflation falling. He said also said that a couple ticks higher in the unemployment rate wouldn’t be enough for cuts.

The dollar fell across the board as he spoke but towards the end of the press conference, that move reversed. Equities also gave back all the gains and more. The market may be increasingly convinced that inflation isn’t going to come down, or there could be fears about the economy or overheated AI tech trades.

Generally though, it takes a day or so to sort through the FOMC and it might be particularly tough this time because of the turn of the month and looming non-farm payrolls report.

This article was written by Adam Button at www.forexlive.com.