Cautious optimism post-Fed rate cut

Fed’s Rate Cut and Market Reaction

The Federal Reserve cut interest rates by 25 basis points, bringing it down to 4.75%. This shift was accompanied by notable adjustments, removing language that previously indicated "greater confidence" in achieving the 2% inflation target. This change reflects the Fed’s growing caution around inflation progress.

Key Takeaways from Powell’s Press Conference:

• Economic Activity: Strong performance in recent data, with a reduction in downside risks to economic growth.
• Inflation Outlook: Powell conveyed ongoing confidence in inflation’s path toward 2%, despite removing specific language of “confidence” from the statement.
• Labor Market: Cooling labor market has reached a balance, reducing the need for additional softening to meet inflation goals.
• Guidance: The Fed is cautious about providing extensive forward guidance due to high uncertainty.

Currencies

• EUR/USD: Falls to around 1.0780 as demand for the USD rises, impacted by trade discussions and tariff concerns.
• USD/JPY: Japan's Leading Economic Index reached 109.4 in September, exceeding expectations of 108.9. The Coincident Index also showed an increase, rising to 115.7 from the previous 114. Additionally, Overall Household Spending (YoY) came in at -1.1%, surpassing the anticipated -2.1% for September.

USD gains against the yen amidst speculation of government intervention, though gains may be capped by risk-on sentiment.

Commodities

• Gold Drops below $2,700, weighed down by USD demand and optimism around U.S. economic growth. Awaiting Michigan Consumer Sentiment data for further cues.
• Silver Retreats to approximately $31.70.
• Oil Sets up for a weekly gain over 3%, with ongoing supply concerns due to Hurricane Rafael and potential policy shifts affecting global oil supply.