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The FOMC cut the target Fed funds rate by 25 basis points to 2-2.25% as expected, but the dollar rallied after the Fed did not clearly signal a lower rate path schedule and it could not get a unanimous vote, which will likely mean future cuts may be harder to come by.
“While the FOMC statement leaves open the door for future cuts if domestic data worsens, it does not indicate a committee united to additional rate cuts, suggesting that while another cut is possible its highly unlikely given active labor markets and a generally robust domestic climate,” Stephen Innes, managing partner at VM Markets Pte, said in a morning note.
“The forward-looking sentence about monitoring conditions said the FOMC would ‘continue to monitor’, dropping the word ‘closely’. Overall, the Fed has stood down from a state of heightened alert,” Innes added.
The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was at 98.83 as at 10.27am Shanghai time, up from 98.06 at a similar time on Wednesday and now near its highest since May 2017.
With the dollar in such high ground, investors’ appetite for commodity investment has been dampened, thus pressuring base metals prices on the SHFE.
As was the case on Wednesday, lead was the worst performer of the SHFE complex. The heavy metal’s most-traded September contract declining to 16,435 yuan ($2,387) per tonne as at 10.27am Shanghai time, down by 70 yuan per tonne, or 0.4%, from Wednesday’s closing price of 16,505 yuan per tonne.
Losses were also seen in September copper (-0.2%), September aluminium (-0.3%), September zinc (-0.4%) during the morning session. Nickel and tin bucked the downtrend with gains of 0.7% and 0.8% respectively.
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