Here is what you need to know on Thursday, January 27:
FOMC Chairman Jerome Powell's hawkish remarks late Wednesday triggered a dollar rally and weighed heavily on major global equity indexes. The US Dollar Index (DXY) continues to push higher early Thursday and markets remain risk-averse ahead of key data releases. The US Bureau of Economic Analysis will publish its first estimate of the fourth-quarter Gross Domestic Product growth, the US Census Bureau will release the Durable Goods Orders figures. Weekly Initial Jobless Claims and Pending Home Sales data will also be featured in the US economic docket.
The Fed left its policy settings unchanged following its January policy meeting as expected. While responding to questions from the press, FOMC Chairman Jerome Powell noted that there was "quite a bit of room" to raise the policy rate without hurting the labour market. Powell further added that inflation has gotten worse since the December meeting and reaffirmed that the committee was in favour of hiking the policy rate in March "assuming that the conditions are appropriate for doing so."
Reflecting the positive impact of Powell's comments on the policy outlook on the dollar's performance against its major rivals, the DXY rose more than 0.5% on Wednesday. As of writing, the DXY was at its highest level since mid-December at 96.68, rising 0.2% on the day. Meanwhile, the benchmark 10-year US Treasury bond yield, which closed the previous five trading days in the negative territory, surged by more than 5% on Wednesday and now stays within a touching distance of 1.9%.
After rising more than 1% during the first half of the session, the S&P 500 Index ended up closing in the red on Wednesday. US stocks futures indexes are down between 1.1% and 1.6% in the early European session, suggesting that Wall Street selloff will likely continue after the opening bell.
Federal Reserve rate cycle to begin in March, markets reverse on warning.
EUR/USD suffered heavy losses on Wednesday and continues to edge lower toward 1.1200 early Thursday. There won't be any high-tier data releases from the euro area and the dollar's market valuation is likely to continue to drive the pair's action.
GBP/USD is trading at its lowest level since the beginning of the year and looks to test 1.3400.
USD/CAD jumped above 1.2600 in the early NA session on Wednesday after the Bank of Canada (BOC) left its policy rate unchanged. Although the pair erased its gains during BoC Governor Tiff Macklem's, who said that they will have to raise rates to counter inflation, press conference, it regathered bullish momentum and climbed above 1.2700.
Gold registered its largest one-day drop since November as it lost more than 1.5% amid surging US Treasury bond yields. XAU/USD is approaching a critical support area near $1,800 and renewed technical selling pressure could be witnessed if that level fails to hold.
USD/JPY gained nearly 100 pips on the back of rising US yields on Wednesday and seems to have gone into a consolidation phase below 115.00 early Thursday.
Bitcoin rose sharply with the initial reaction to the Fed's policy statement but failed to preserve its recovery momentum. BTC is down nearly 2% on the day at $36,000 in the early European session. Ethereum is losing more than 2% on the day near $2,400 after closing the previous two days flat.
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