FX.co ★ 25.03.2024: Market round-up on March 25. Why USD and Wall Street trading in sync today

Today, markets are still impressed by several surprises from major central banks that arrived last week. Their unexpected policy decisions confused the forecasts for future actions of the central banks of Europe and the US to reduce interest rates. The Federal Reserve may be able to maintain its aggressive monetary policy even longer than other advanced economies.

After the unexpected move by the Swiss National Bank last week, a June rate cut in the eurozone and England already looks realistic, especially in light of statements by ECB President Christine Lagarde about the prospects for taming inflation and decisions at the Bank of England.

Although the UK regulator has not yet changed its interest rates, two of its most hawkish policymakers softened their stance and joined the ranks of the doves. Besides, one of the ECB hawks on Friday announced the chances of the first rate cut in April.

Last week, on March 20, the Federal Reserve also maintained interest rates unchanged. But comments from Fed Chairman Jerome Powell were seen as dovish and led to a fall in the US dollar. On the other hand, a series of robust economic data has since raised doubts that the central bank is actually going to cut interest rates three times this year.

It is not a sire-fire scenario that the US Fed will launch monetary easing in June. Moreover, this week, reports on the PCE price index for February, which is the Fed’s preferred indicator of inflation, are published. Any increase in these indicators will destroy hopes for a Fed’s rate cut in June.

In the meantime, the prospects for a rate cut this year, confirmed by the Fed Chairman, have inspired Wall Street. Last week was the best week for stocks in the last 3 months. The S&P 500 closed it with a gain of 2.3%. The barometer of the stock market’s health started trading on Monday quietly, consolidating within the intraday corridor between 5,216 and 5,224.

Forex traders also prefer to refrain from buying for now. After a 1% rally against its basket of currencies last week, the US dollar is trading more modestly today. The dollar index is trading lower within the intraday corridor between 104.1 and 104.5.

However, experts do not rule out the possibility for the greenback to break through the upper border and move towards the 105 level. The fact is that today the monetary authorities in China and Japan have become strong deterrents to the US dollar.

A new decline in the yen to its multi-year lows forced Japan’s financial authorities to warn markets about their readiness for currency intervention on Forex. So, the yen may weaken to 151 against the US dollar.

Also, according to market experts, Chinese state-owned banks carried out a large injection of liquidity into the domestic market. By selling dollars, Beijing is trying to support the yuan amid low interest rates from the People's Bank of China. However, it is unclear whether a dollar sell-off on Monday means that authorities are striving to defend the yuan's forex rate at around 7.2 or are simply trying to stem its decline.

At the same time, traders went long on the US dollar because the Federal Reserve seems to be in no hurry to cut interest rates compared to some of its peers. Therefore, the euro found itself among the outsiders of the dollar basket of currencies.