Global markets saw a positive shift overnight as Federal Reserve Chair Jerome Powell reassured investors that recession risks in the U.S. were “not high” despite some economic adjustments. The U.S. dollar weakened in response, while the Australian and New Zealand dollars gained strength.
Federal Reserve Holds Rates Steady, Adjusts Growth & Inflation Outlook
The Federal Reserve maintained its benchmark interest rate at 4.25% to 4.50%, signaling a pause in rate hikes. However, the central bank made notable adjustments to its economic outlook:
2025 Growth Forecast: Lowered from 2.1% to 1.7%, indicating a slower pace of economic expansion.
2025 Inflation Forecast: Raised from 2.5% to 2.7%, suggesting higher-than-expected price pressures.
Despite these adjustments, Powell’s optimistic stance on the economy boosted risk sentiment, leading to a strong rally in U.S. equities.
The S&P 500 surged 1.1%, marking its best post-Fed gain since July (source: Bloomberg).
USD Weakens, AUD & NZD Gain
The Australian dollar (AUD) and New Zealand dollar (NZD) both rebounded following Powell’s statement.
AUD/USD climbed to a three-month high, supported by risk-on sentiment.
NZD/USD hit its highest level since December, helped by a better-than-expected Q4 GDP report.
USD/SGD and USD/CNH dropped to recent lows, reflecting broader dollar weakness.
Australia’s Employment Data in Focus
Looking ahead, Australia’s unemployment rate for February is set to be released at 11:30 AM AEDT.
Projections indicate employment growth of over 60,000 jobs in February.
The jobless rate, which ticked up to 4.1% in January, is expected to decline back to 4.0%.
If the data comes in stronger than expected, the AUD/USD could extend gains. The next key technical support level for AUD/USD is at 0.6326 (50-day moving average).
GBP/USD Hits Four-Month High as BoE Decision Looms
The British pound (GBP) remained strong ahead of today’s Bank of England (BoE) interest rate decision, scheduled for 11:00 PM AEDT.
Markets expect the BoE to hold rates steady, with only a 1.8% probability of a cut (Bloomberg data).
A rate cut is fully priced in by July, contributing to GBP’s recent strength.
Key developments:
- GBP/USD hit a four-month high overnight.
- GBP/SGD is trading at an eight-month high.
- GBP/AUD remains near its five-year high, reflecting the divergence in monetary policy expectations.
Market Watch: UK Consumer Confidence & Global Fiscal Policies
Tomorrow, the UK GfK Consumer Confidence Report will be released. The previous reading was -20, unchanged for the past five months.
- Analysts are watching whether Europe’s fiscal policies influence UK sentiment.
- Geopolitical concerns, tariffs, and weak growth prospects remain key risks for GBP.
With central bank decisions, economic data, and geopolitical developments in focus, volatility in FX markets is expected to remain elevated.
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