How did the market respond to the Fed’s announcement of a historic rate hike?

6/16/2022 12:47:13 PM GMT

• The Federal Reserve boosted interest rates by 0.075 percentage points on Wednesday.
• The Wednesday rate increase was the highest since 1994.
• The rate increase had a mixed effect on various commodities, currencies, and index prices.

The Federal Reserve spiked interest rates by 0.75 at its Wednesday meeting. The spike was the biggest rate hike since 1994, as another step from the Fed in to combat high inflation in the US, which is running at 40 years high.

The rate hike from the Fed is a step to raise the cost of borrowing and reduce liquidity in the economy, which will help slow down inflation.

Consequently, it will decrease purchasing power and tighten the gap between demand and supply in most economic sectors.

The varieties of commodities, currencies, and indexes responded differently to the interest rate rise. The first price action for gold and several currencies was timid, followed by a price comeback, and the S&P 500 index has been in full collapse. The sp500 was trading at 3,706.1 at press time, down -2.22 percent for the day.

However, the DXY also ends Wednesday in the red territory, knowing that the rate hike increased the demand for the currency. Meanwhile, traders would not see the direct effects on the market, as we have witnessed in the past. The market would sometimes react slowly to the fundamental changes.

However, Brent and WTI tumbled for the day following the interest rate hike. At 11:28 GMT, Brent oil traded at 116.8, down 1.25%. The WTI trades at 113.78, down 1.42% for the intraday.

On the other hand, experts were expecting a rise of 0.50–0.75 in the interest rate, which made the rise have less impact on the market. However, the mixed influences had a place in the gold price. At the time of writing, XAU/USD traded at 1,820.78, down .75% on a daily basis. The price rebounded around 370 pips before retiring to the current levels.

Having said that, the rate hike has had mixed impacts on the currency’s performance. However, for the second day in a row, the Japanese Yen continued on its strength. The USD/JPY was trading at 132.82, down 0.75%. Moreover, the EUR/USD was trading at 1.0397, down 0.44%. And the GBP/USD was trading at 1.2146, down 0.26 for the day.

The next few hours would clear the directions of most currencies as the European currency trading close to a critical territory close to the current year low, and the British pound defends hard against falling from the current levels. Gold also consolidates into a band without any clear direction signs.