Markets Surge on Fed’s Rate Decision

March 21, 2024

Wednesday witnessed a significant rally in the stock market, with the Dow Jones, S&P 500, and Nasdaq Composite all reaching all-time highs after the Federal Reserve decided to maintain interest rates at their highest in 23 years while signaling three rate cuts by the end of 2024. This decision was met with optimism, particularly within the financial and technology sectors, leading to notable gains across various stocks. In the currency market, the dollar experienced volatility, eventually declining as the Fed remained cautious but committed to adjusting its policy in response to inflation trends, impacting Treasury yields and currency pair values significantly.

Stock Market Updates

On Wednesday, stock markets experienced a significant uplift, with the three major averages reaching new all-time highs. This surge came in the wake of the Federal Reserve’s decision to maintain interest rates at their highest level in 23 years while signaling three potential rate cuts by the end of 2024. The Dow Jones Industrial Average soared by 401.37 points or 1.03%, closing at 39,512.13. The S&P 500 followed suit, gaining 0.89% to end the day at 5,224.62 — crossing the 5,200 threshold for the first time. Meanwhile, the Nasdaq Composite experienced a 1.25% jump, settling at 16,369.41.

The Federal Reserve’s announcement to keep rates steady was accompanied by plans for future cuts, echoing its previous forecasts from December. Despite leaving rates unchanged, the central bank expressed the need for more substantial evidence of inflation easing before considering a reduction in rates. The statement from the Fed underscored its cautious approach, emphasizing the need for greater confidence in inflation trending sustainably towards its 2% target before adjusting the target range for rates. This stance came amid investor concerns that recent spikes in inflation could lead to fewer-than-expected rate cuts.

In the financial sector, stocks rose on hopes that the anticipated rate cuts would spur continued economic growth. American Express and the SPDR S&P Regional Banking ETF saw gains of 2.8% and over 3%, respectively. Technology giants, often seen as beneficiaries of lower rates, also experienced an upswing, with companies like Alphabet, Amazon, Microsoft, and Nvidia each gaining around 1%. Meta Platforms outperformed with a 1.9% increase, while Apple and Tesla advanced by 1.5% and 2.5%. Other notable movements included Chipotle Mexican Grill, which climbed 3.5% following an announcement of a stock split, and Paramount Global, which surged 11.8% amid reports of a significant acquisition offer from Apollo Global Management.

Currency Market Updates

In the currency markets, the dollar index saw a reversal from early gains to losses on Wednesday. This shift was largely attributed to the Federal Reserve’s decision to maintain its projection for three rate cuts in 2024 without reducing the number despite updating its GDP and inflation forecasts. Fed Chair Jerome Powell underscored the central bank’s commitment to achieving its inflation goals and the importance of being adaptive in its policy approach, also highlighting a cautious stance to avoid repeating past mistakes in quantitative tightening.

Although the Fed kept its rates unchanged and the median expectation for rate cuts in 2024 stayed consistent, the actual number of policymakers supporting this projection slightly decreased. This development influenced market dynamics, with two-year Treasury yields dropping and the probability of a June rate cut increasing. Furthermore, the Fed’s upward revision of its GDP growth and core PCE inflation expectations for 2024 contributed to these market movements.

Currency pairs reacted to the Fed’s announcements and broader market sentiment. The EUR/USD pair rose by 0.45%, effectively recovering from earlier losses, supported by strong demand at key technical levels. The USD/JPY pair retreated from its pre-Fed gains, touching levels close to recent peaks before a slight rebound. Meanwhile, the British pound achieved a 0.5% gain against the dollar, buoyed by significant declines in UK inflation rates for February, marking a notable intraday reversal from earlier losses.

Picks of the Day Analysis

EUR/USD (4 Hours)

EUR/USD Surges Amid Dovish Fed Outlook and Interest Rate Speculations

In a marked shift, the EUR/USD pair breached the 1.0900 mark, reaching four-day highs following a dovish stance from Federal Reserve Chair Powell, who hinted at potential interest rate cuts amidst a backdrop of a robust U.S. economy but hindered business investment due to high interest rates. Despite the Federal Reserve’s decision to maintain rates, with a long-term view of reducing them to achieve a 2% inflation target, the dollar saw a pullback as Powell emphasized the need for sustained confidence in inflation reduction before enacting rate cuts. This dovish outlook, coupled with anticipations of both the Federal Reserve and the European Central Bank beginning their easing cycles by mid-year, has fueled speculations, impacting the EUR/USD dynamics and suggesting a possible stronger dollar in the medium term, with eyes on future rate movements and economic indicators.

Chart EUR/USD by TradingView

On Wednesday, the EUR/USD moved strongly higher affected by the dovish statement from the Fed, able to create some push to the upper band of the Bollinger Bands. Currently, the price is moving slightly above the upper band, suggesting a potential slight upward movement to reach the resistance levels. Notably, the Relative Strength Index (RSI) maintains its position at 66, signaling a bullish outlook for this currency pair.

Resistance: 1.0950, 1.0984

Support: 1.0914, 1.0885

 Economic Data