Fed Powell: interest rate cuts likely, “this year”
In his semi-annual testimony to congress, Fed Chair Jerome Powell signaled that interest rate cuts are still on the horizon for 2024. This announcement comes amid strong US data that convinced traders early in 2024 that rates could stay elevated for the foreseeable future. Investors and traders alike are closely monitoring these indications, as lower interest rates could have wide-reaching effects across financial markets, from boosting investment to altering currency valuations.
EUR/USD above 1.0900; AUD/USD nears 0.6600
Following Fed Chair Powell’s comments, the US dollar experienced a decline, dropping more than 50 pips against major currencies such as the Australian dollar and the euro. Specifically, EUR/USD soared above 1.0900, while the AUD/USD approached the 0.6600 mark. This weakening of the USD on Powell’s dovish tone underscores the currency’s sensitivity to shifts in monetary policy outlooks.
US yields decline toward 4.0%
US Treasury yields, historically aligned with the Federal Reserve’s interest rate movements, are now trending lower toward the 4.0% threshold. This decline reflects market expectations for the forthcoming rate cuts promised by Powell, as yields inversely react to the anticipated easing of monetary policy. Lower yields and the prospect of reduced rates could influence various sectors of the economy, particularly in terms of borrowing costs and investment returns.
Gold prices rise to new all-time high above $2,150
In response to Powell’s testimony and the expected shift in Federal Reserve policy, gold prices surged to a new all-time high, exceeding $2,150. Given gold’s historical negative correlation with interest rates, this uptick aligns with investor behavior during periods of reduced rates, where gold (a non-interest-bearing asset) often serves as a hedge against currency devaluation and inflation risks.
BTC rallies back to $67,000; ETH hits $3,800
The cryptocurrency market has also reacted positively to the anticipated changes in Federal Reserve policy, with Bitcoin rallying back to $67,000 and Ethereum reaching $3,800. This resurgence highlights cryptocurrencies as beneficiaries of expansionary monetary policies, as investors are more incentivized to seek alternative assets amidst expectations of lower interest rates and potential inflationary pressures.