Stocks plunge as Fed gives sobering outlook for US economy
The US dollar rose today a day after the Federal Reserve delivered its interest rate decision. The bank left rates unchanged between 0% and 0.25% and signaled that the rates will remain at that level at least until 2022. Also, the bank left the open-ended quantitative easing program unchanged. It will now be buying $80 billion worth of treasuries and $40 billion worth of mortgage-backed securities every month. The Fed statement was considered sobering by most market participants, which is the reason why the dollar surged as other global currencies fell.
Traders also reacted to initial jobless claims and factory-gate inflation data. According to the Bureau of Labour Statistics, more than 1.54 million Americans filed for jobless benefits a week ago. This was better than the previous week’s 1.8 million jobs. The lagging continuing claims declined to 20.9 million from the previous 21 million. Meanwhile, the headline PPI declined by 0.8% In May while the core PPI rose by 0.3%.
Global stocks declined as investors reacted to the Federal Reserve decision. In Europe, the DAX index declined by more than 2.69% while the FTSE 100 and CAC 40 indices fell by 2.4% and 2.70% respectively. In the United States, futures tied to the S&P500 and Nasdaq declined by 2% and 1.47% respectively. Among the biggest gainers in the FTSE was Just Eat Takeaway after the company announced a $7.3 billion purchase of Grubhub. The deal will help the company grow its market share in the United States. Still, it will face significant competition from the likes of Uber Eats, which has been expanding rapidly in the country.
The New Zealand dollar declined even after the company reported excellent retail sales numbers. The decline was mostly because of the overall dollar strength today. According to the statistics office, electronic card retail sales jumped by a record 78.9% in May after dropping by 47.5% in the previous month at the height of the lockdown. The sales dropped by 6% on an annualized basis, which was better than the previous decline of 47.5%. These numbers came at a time when the country is starting to reopen its economy.
The EUR/USD pair was little changed today as traders reflected on the Fed rates decision. The pair is trading at 1.1362, which is lower than the important resistance level of 1.1400. On the four-hour chart, the price is above the short and medium-term moving averages while the RSI is slightly below the overbought level of 70. Also, the pair is forming a bullish flag pattern, which means that it is likely to continue rising. But bulls will need to defend the important resistance at 1.1400.
The GBP/USD pair declined today due to dollar weakness and increasing layoffs in the UK. Earlier today, companies like Heathrow, Johnson Matthew, and Centrica announced thousands of job losses. On the four-hour chart, the price is slightly above the important support of 1.2645. The price is a few pips above the 50-day exponential moving averages and above the 61.8% retracement. The pair may continue falling as the UK’s economic conditions worsen.
The NZD/USD pair declined to an intraday low of 0.6475, which is lower than this month’s high of 0.0.6585. On the four-hour chart, the price is slightly above the 50-day and 100-day exponential moving averages while the RSI is falling. Interestingly, the pair has formed an evening star candlestick pattern. This means that the pair may continue falling as bears attempt to move below 0.6400.