Markets On the Eve of Fed`s Interest Rate Decision | Daily Market Analysis

Key events:  

• USA – ADP Nonfarm Employment Change (Oct)  
• USA – Crude Oil Inventories  
• USA – FOMC Statement     
• USA – Fed Interest Rate Decision
• USA – FOMC Press Conference

U.S. stock indices, which began an active growth in trading on Tuesday, ended the session in the red after the publication of strong macroeconomic statistics, which increased the likelihood of a more aggressive tightening of monetary policy by the U.S. Federal Reserve (Fed).

The ISM Manufacturing business index fell to 50.2 points in October from 50.9 points a month earlier, according to data released by the Institute for Supply Management on Tuesday. The indicator updated to its lowest level since mid-2020 but managed to stay above the 50-point mark, separating a decline in business activity from growth.

Meanwhile, the number of open jobs in the US unexpectedly increased by 437,000 to 10.717 million in September from 10.28 million in August. Experts on average expected a decline to 10 million, notes Trading Economics.

During today's trading, the U.S. dollar is getting cheaper against the euro, yen, and pound sterling as the market is waiting for the results of a two-day meeting of the Federal Reserve (Fed).

Traders do not doubt that the rate at the November meeting will be increased by 75 bp for the fourth time in a row, and their main focus is on Fed Chairman Jerome Powell's statements on the further pace of policy tightening.

Signals of sustained inflationary pressures require the U.S. Central Bank to continue raising the rate, but some of its leaders have already made it clear they believe it is necessary to slow the pace of increases and assess the economic impact of earlier measures, notes The Wall Street Journal.

Many economists warn of the risks of excessive Fed policy tightening, which could provoke a serious economic downturn.

"The Fed will have to consider a policy adjustment at the November meeting. They're trying to 'cool' the economy, not lead it into a deep freeze," notes KPMG Chief Economist Diane Swank, cited by WSJ.

Experts polled by Bloomberg expect the Fed to slow the rate hike in December to 50 basis points before raising it twice more by 25 basis points in early 2023.

The DXY index showing the dollar's performance against six currencies (euro, Swiss franc, yen, Canadian dollar, pound sterling, and Swedish krona) lost 0.2% Wednesday, while the broader WSJ Dollar lost 0.24%.

The Bank of England is also meeting this week and the results will be released on November 3. Experts expect the British central bank to raise its benchmark rate by 75 bps. - up to 3%. The Bank of England has not raised the rate by more than 50 basis points since 1989, notes FT.