Fed Stands Firm on Interest Rates Amid Hawkish Sentiments

The Federal Reserve's decision to maintain interest rates had a mixed impact on the markets, with investors reacting to a seemingly hawkish monetary policy statement accompanied by a dovish post-rate press conference. Meanwhile, the yield curve experienced its most significant inversion since the banking crisis, and both gold and crude oil prices witnessed a decline.

Key Factors for Today

• The Federal Open Market Committee (FOMC) leaves policy unchanged, but the "dot-plot" suggests a more hawkish stance.
• Gold prices slide as US inflation cools down and the Producer Price Index (PPI) falls below expectations.
• Surprise build in crude oil inventories weakens West Texas Intermediate (WTI) prices.
• Japan's trade deficit causes USD/JPY to reach a 7-month high.
• Australian dollar records a 5-day winning streak due to positive jobs data.

Market Movers

• The FOMC's decision to maintain interest rates elicited mixed reactions from the market, reflecting investors' uncertainty.
• The "dot-plot" matrix revealed a 50 basis points increase, indicating a more hawkish outlook compared to market expectations.
• Gold prices declined by 0.5% as US inflation cooled down and PPI data fell short of forecasts.
• Crude inventories surprised the market with a significant 7.9 million barrel increase, putting downward pressure on WTI prices.
• Japanese exports exceeded expectations, leading to a trade deficit and driving the USD/JPY pair to a 7-month high.
• Australia's strong job growth in May propelled the Australian dollar to a 5-day winning streak.

Economic Calendar 

• French Final CPI
• EA trade balance
• ECB Rate Decision and Press Conference
• Eurogroup meeting
• BOE Deputy Governor Jon Cunliffe at Political Global Tech Summit
• US Retail Sales
• US Empire Manufacturing
• Weekly US initial jobless claims
• US May import price index

The Big News

Fed Pauses, but "Dot-Plot" Leans Hawkish: The Federal Reserve's decision to keep interest rates unchanged marked a departure from the previous ten consecutive meetings. The policy statement remained largely unchanged, hinting at the possibility of a rate hike in July. Notably, the "dot-plot" matrix revealed a more hawkish sentiment, with projections indicating a 50 basis points increase compared to the market's expectation of a 25 basis points hike. In the post-rate decision press conference, Fed Chair Jerome Powell emphasized that the decision to maintain rates was not a "skip," citing the progress made towards moderating inflation. As a result, the US dollar weakened against major currency pairs, with the DXY falling to 102.67 before recovering to the 103.00 range. Further upside movement may face resistance around the 103.60 level.

Gold Slides With More Data Showing US Inflation Cooling: May's final PPI data from the US revealed a 0.3% decline, below the expected 0.1% decrease. The annual pace also fell to 1.1%, the lowest level since the end of 2020, contrasting with the forecasted 1.5% rate. These figures contributed to a 0.5% drop in gold prices. The precious metal closed at $1,942, potentially testing the next support level at $1,920. On the other hand, if a rebound occurs, resistance might be encountered at $1,965.

Another Surprise Build in Inventories Weakens WTI: The US Department of Energy reported a substantial increase of 7.9 million barrels in crude oil inventories, significantly surpassing the expected 0.5 million barrel drawdown. Additionally, gasoline inventories grew by 2.1% against market expectations of no change. With refinery utilization dropping to 93.7% instead of the anticipated 95.8%, WTI prices faced downward pressure. Support levels around $67.20 may be tested, while a resistance level below $71.00 is situated at $70.00.