Fading risk aversion pushed the US dollar back and forth as market participants looked for a 100bp rate cut by the Fed, but the central bank failed to meet market expectations as they reduced the interest rate by 75bp. The Fed stated that the 75bp cut would be sufficient to foster growth over time, and reassured the markets that the central bank will act in a timely manner as downside growth risk persists – leaving the door open for another rate cut – while signaling that they were concerned about inflation pressures. As a result, the US dollar advanced against the Yen, the Swiss Franc and the euro as the weakened dollar snapping back from record lows. The US dollar picked up the most against the Yen as the pair closed at 99.86, while the Swiss franc closed below parity against the US dollar as it ended at 1.0027, with the euro also retracing as the pair fell to 1.5624. Conversely, the US dollar lost the most against the New Zealand and the Australian dollar due to the increasing demand for higher-yielding assets, follows by the Canadian dollar as oil futures climbed to 108.73.
The 75bp cut by the Fed failed to meet market expectations, but did not stop the stock markets from advancing as investors turned bullish. As a result, the DJIA picked up more than 300 points prior to the rate decision, and shot even higher as it picked up 420.41 points by the end to leave the index at 12,392.66. Out of the 30 components, all of the stocks advanced with AIG and Bank of American soaking in the most gains. Among the broader indices, the S&P500 advanced 54.14 points to bring the index to 1,330.74, with advancing issues more than tripling the amount of declining issues.
As investors craved for risk, many moved out of the safe haven of risk free bonds, and sent US Treasury prices falling. Consequently, the benchmark 10-Year yield jumped to 3.49 percent from 3.32 percent, while the 2-Year yield surged to 1.61 percent from 1.36 percent.
Looking ahead, as Good Friday cuts the trading week short, the main focus for the remainder of the week is the Leading Indicators due out on Thursday at 14:00 GMT. For tomorrow, we expect some corrections to occur as investors reassess today’s major price actions, and anticipate increased volatility in the markets to continue till the end of the week.