The dollar index (DXY00) on Wednesday fell by -0.50% and posted a new 6-month low. The dollar was under pressure after the Fed on Wednesday dialed back to a +50 bp rate hike from the +75 bp rate hikes seen at the previous four FOMC meetings. The dollar also retreated after the Fed cut its 2023 U.S. GDP forecast.
The FOMC, as expected, raised its federal funds target range by 50 bp to 4.25%-4.50% and said "ongoing" rate increases would likely be appropriate to reach a "sufficiently restrictive" stance that returns inflation to 2% over time.
The Fed's median forecast for interest rates at the end of 2023 is now 5.125%, up by +50 bp from 4.625% projected in September.
The FOMC lowered its 2023 U.S. GDP forecast to +0.4%/1.0% from a September estimate of +0.5%/1.5% and raised its 2023 core PCE range to 3.0%/3.8% from a September projection of 2.8%/3.5%.
Fed Chair Powell said the Fed isn't at a sufficiently restrictive policy stance yet and still "has some ways to go" on interest rate hikes. He also said the FOMC needs substantially more evidence of lower inflation and that FOMC members see inflation risks to the upside.
EUR/USD (^EURUSD) on Wednesday rose by +0.38%. The euro Wednesday climbed to a new 6-month high on dollar weakness. The euro also saw support from expectations that the ECB, at its meeting on Thursday, will raise rates by +50 bp.Â
The euro was undercut by Wednesday’s weak Eurozone Oct industrial production report of -2.0% m/m, weaker than expectations of -1.5% m/m.
USD/JPY (^USDJPY) on Wednesday fell by -0.29%. The yen Wednesday added to Tuesday’s gains and climbed to a fresh 1-week high against the dollar.  The yen found support Wednesday after a Bloomberg report said that BOJ officials see the possibility of having a policy review next year. The yen also gained on better-than-expected machine order and Tankan reports.
Wednesday’s Japanese economic news was mostly supportive of the yen. Oct core machine orders rose +5.4% m/m, stronger than expectations of +1.8% m/m and the largest increase in 6 months. Also, the Q4 Tankan large manufacturing business conditions fell to 7 from 8 in Q3, stronger than expectations of 6. On the negative side, Oct industrial production was revised downward by -0.6 points to -3.2% m/m from the initially reported -2.6% m/m, the biggest decline in 5 months.
February gold (GCG3) on Wednesday closed down -6.8 (-0.37%), and March silver (SIH23) closed up +0.146 (+0.61%). Precious metals Wednesday settled mixed. A decline in the dollar index Wednesday to a 6-month low was bullish for metals prices. Gold prices moved lower after the FOMC raised the fed funds target range by +50 bp, as expected. Also, gold fell on a drop in the 10-year breakeven inflation expectations rate fell to a 2-1/4 month low, which curbs demand for gold as an inflation hedge.
More Precious Metal News from Barchart
- Stocks Move Lower After Fed Raises Rates Half a Point
- Dollar Drops to 6-Month Low on Weak U.S. CPI
- Stocks HIgher on Fed-Friendly U.S. CPI Report
- Dollar Climbs on Higher T-Note Yields
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.
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