Dollar Jumps on Fed’s Hawkish Remark

• The dollar strengthened to its 2-year high on the Fed's Hawkish remark.

• Eyes on today's BoE interest rate decision to gauge the Pound Sterling's strength.

• Dow Jones dropped more than 2.5% in yesterday's session and has recorded a 10th straight loss.

Market Summary

The FOMC interest rate decision yesterday triggered significant market volatility, with all eyes on the Federal Reserve's hawkish stance. Jerome Powells remarks signaling fewer rate cuts in 2025 and the expectation that the Fed funds rate will remain near the 4% level to curb inflation drove the U.S. dollar higher. The dollar index (DXY) surged by more than 1%, reaching its highest level since November 2022, which put downward pressure on its peers.

In contrast, the New Zealand Dollar (NZD) was hammered by a disappointing GDP reading, which showed a -1.0% contraction, sending the NZD/USD pair to its lowest level since October 2022. Forex traders are now turning their focus to todays Bank of England (BoE) interest rate decision, with expectations that the central bank will keep rates unchanged.

On Wall Street, U.S. equity markets took a hit from the hawkish remarks, with the Dow Jones leading the declines, closing more than 1,000 points lower. The perception of higher interest rates in the coming year is expected to keep selling pressure on riskier assets. Similarly, the crypto market saw a significant selloff, with both Bitcoin (BTC) and Ethereum (ETH) experiencing sharp declines. Bitcoin saw its largest single-day drop since September, following Powells comments, including his dismissal of the idea that the U.S. central bank would acquire Bitcoin as a national reserve, which further dampened market sentiment in the crypto space.

Current rate hike bets on 29th January Fed interest rate decision:

Source: CME Fedwatch Tool

0 bps (93.6%) VS -25 bps (6.4%)

Market Movements

DOLLAR_INDX, H4

The U.S. Dollar surged as Federal Reserve Chair Jerome Powell's hawkish remarks following the FOMC interest rate decision reignited investor confidence in the greenback. Powell signalled the likelihood of fewer rate cuts next year to combat persistent inflation, reinforcing a robust monetary policy stance. Consequently, the Dollar Index spiked by over 1% in yesterday's session, marking its strongest performance in weeks. With bullish momentum firmly in place, the index appears poised to test its next resistance level near the 108.60 mark.

The Dollar Index rose sharply after a week-long sideways pattern, suggesting a bullish signal for the dollar. The RSI has gotten into the overbought zone after 3 weeks while the MACD diverged above the zero line, suggesting that the bullish momentum is gaining.

Resistance level: 108.60, 109.50

Support level: 107.60, 106.75

XAU/USD, H4

Gold prices suffered a steep decline in yesterday's session, driven by the strengthening U.S. dollar following the Fed's hawkish outlook. The precious metal decisively broke below a critical fair-value gap, signaling a bearish trend. With no major independent catalysts, gold's price movements remain closely tied to fluctuations in the Dollar Index. While a marginal recovery from yesterday's plunge is plausible, strong selling pressure is anticipated near the $2,610 mark, limiting any substantial rebound and reinforcing the bearish outlook for the near term.

Gold slid by nearly 5% from its recent peak and has broken below its psychological support level at $2600, suggesting a bearish signal for the pair. The RSI has dropped into the oversold zone while the MACD edged lower after breaking below the zero line, suggesting that the bearish momentum is gaining.

Resistance level: 2612.50, 2656.00

Support level: 2556.00, 2485.65

GBP/USD，H4

The GBP/USD pair extended its decline, breaking below its previous low and signaling a bearish outlook for the currency pair. The Pound faced significant downward pressure, primarily driven by the strengthening U.S. dollar following the Federal Reserve's hawkish statement, which bolstered market sentiment in favor of the greenback. However, attention now shifts to the Bank of England's interest rate decision scheduled for today. Market consensus expects the BoE to maintain its current interest rate levels, a move that could provide some support and potentially help the Pound recover from its recent losses.

GBP/USD has recorded a new low, suggesting a bearish signal for the pair. The RSI is an inch away from dropping into the oversold zone, while the MACD failed to break above the zero line, suggesting the pair is trading with bearish momentum.

Resistance level: 1.2620, 1.2700

Support level:1.2505, 1.2410