The latest Federal Reserve meeting concluded with an unexpectedly optimistic outlook. Following the meeting, Chairman Jerome Powell reassured markets that although the benchmark rate will remain steady at 5.5% for the time being, this year will see no less than three interest rate cuts. During the press conference, Powell addressed the surprising uptick in inflation seen at the beginning of the year, but insisted that the Fed’s outlook on the economy had not fundamentally changed because of it, stating that the path to 2% inflation may be a bumpy one.
The statement was music to the ears of many, sparking a market-wide rally that culminated with the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all establishing consecutive all-time highs on Wednesday and Thursday.
The euphoria was not contained to US markets. Following a mid-week bank holiday in Japan, the Nikkei 225 opened high on Thursday and maintained momentum to close out the session 2% higher, printing yet another fresh record for the Japanese index. The Bank of Japan recently announced an increase in its own benchmark rate but the signs of strength in the Japanese economy continued to outweigh the prospect of tighter monetary conditions.
Following the decision of the Federal Reserve, it was the turn of the Bank of England and the Swiss National Bank to chime in with their own commitments. Whereas the former surprised no one by maintaining the current 5.25% target, the latter caught traders off guard after the SNB announced a surprise cut from 1.75% to 1.5%. The decision sent the Swiss Franc plummeting to the downside, USDCHF gaining 1.2% on Thursday.
Prospects of lower rates on the Dollar no doubt contributed to the rally in gold seen over the last two days. Prices surged up to $2,186 an ounce on Wednesday and initially continued to drive higher the following day, XAUUSD reaching as high as $2,222. Short-lived however, as prices came crashing back down to finish 0.2% in the red on Thursday, in a move reminiscent of the wick seen back in early December.
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