The Fed’s less dovish tone may have set the stage on Thursday, but the BOJ’s dovish hold and the BOE’s surprise vote stole the spotlight and fueled volatility among the major assets.
The dollar surged, gold sank to a six-day low, oil slid on demand worries, and Bitcoin retreated as traders grappled with central bank whiplash and stronger U.S. data.
Read on to see how your favorite assets traded in the last trading sessions!
Headlines:
- Melbourne Institute inflation expectations in Australia rose from 3.8% to 4.2% in December, the highest since September
- ANZ: New Zealand business confidence index fell from 64.9 to 62.3 in December; Pricing indicators and inflation expectations were little changed
- The BOJ kept its interest rates steady at 0.25% on Thursday after a split 8-1 vote; waiting for more Japanese wage data and U.S. policy developments before next interest rate move
- Switzerland trade surplus shrank from 8.03B CHF to 5.42B CHF as exports (-11.0%) fell faster than imports (-3.6%) in November
- The BOE kept its rates steady at 4.75%, but a 6-3 vote split weighed on GBP
- U.S. GDP Growth for Q3 2024 was revised higher to 3.1% q/q from 2.8% q/q; Core PCE was revised higher to 2.2%
- U.S. weekly initial jobless claims for week ending Dec 17: 220K from unrevised 242K previous
- Philadelphia Fed Manufacturing Index for December 2024 showed a significant decline, with the index dropping to -16.4, which is the lowest since April 2023
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
The Fed’s hawkish tone from Wednesday kept markets on edge, with its forecast of only two rate cuts in 2025 (down from four) setting a cautious vibe. Stronger Q3 GDP at 3.1% added fuel to the “higher for longer” narrative, driving Treasury yields to a 6-month high of 4.57%. On top of that, the BOJ’s dovish stance and the BOE’s surprise split vote stirred up even more market action.
The S&P 500 reversed early gains to finish down 0.09% at 5,867.08, while the Dow barely broke its losing streak with a tiny 0.04% gain.
Gold futures extended their slide, dropping 1.7% to $2,592.20 for a sixth straight loss as hopes for rate cuts faded. Oil markets stayed under pressure, with WTI crude slipping from $70.50 to $68.96 as concerns over China’s demand and record capital outflows overshadowed ongoing Middle East tensions. The stronger dollar didn’t help either.
Bitcoin pulled back from $102K, settling near $97,600 as the higher-for-longer rate outlook curbed risk appetite.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The dollar gave up some of its post-Fed gains during early Asian trading as markets settled after Wednesday’s moves. But the dip didn’t last long for USD/JPY, as the BOJ’s dovish hold and Governor Ueda’s clear message about holding off on rate hikes until at least March—citing wage uncertainty and even concerns over Trump-era tariffs—quickly boosted the Greenback.
The dollar’s selloff cooled by the European session and the BOE added fuel to the fire by surprising markets with three members voting for rate cuts when the markets only expected a single dissent. This sharp contrast to the Fed’s hawkish tone on Wednesday re-energized dollar bulls.
Stronger-than-expected U.S. data encouraged more USD buying during the U.S. session, as Q3 GDP was revised up to 3.1% from 2.8%, and jobless claims came in better than expected at 220K supported the Fed’s shift to a less dovish stance.
By the end of the day, the dollar climbed back up as the policy gap between a hawkish Fed and increasingly dovish central banks became clearer.
Upcoming Potential Catalysts on the Economic Calendar:
- Germany PPI at 7:00 am GMT
- U.K. retail sales at 7:00 am GMT
- U.K. public sector net borrowing at 7:00 am GMT
- U.K. CBI realized sales at 11:00 am GMT
- U.S. FOMC member Daly to give a speech at 12:30 pm GMT
- Canada retail sales data at 1:30 pm GMT
- U.S. core PCE price index at 1:30 pm GMT
- U.S. personal income at 1:30 pm GMT
- U.S. personal spending at 1:30 pm GMT
- Eurozone consumer confidence at 3:00 pm GMT
- U.S. revised UoM consumer sentiment and inflation expectations at 3:00 pm GMT
- Australia CB leading index at 3:30 pm GMT
Traders are in for a busy day, with German PPI and U.K. retail sales on tap during the European session.
In the U.S., focus will turn to the U.S. core PCE price index – the Fed’s preferred inflation measure – alongside consumer spending data, Fed member Daly’s speech, and the final UoM inflation expectations which could significantly impact USD pairs as traders scrutinize signs of inflation persistence and the Fed’s likely path forward.
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