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Wall Street and European Markets Rise in Anticipation of Federal Reserve’s Pause in Rate Hikes

Published 2023-09-20, 02:00 p/m

Wall Street and European stock markets rose on Wednesday as traders anticipated a pause in the US Federal Reserve's interest rate hike campaign. The main indices on Wall Street opened higher, while markets in London, Paris, and Frankfurt also posted gains.

The focus was on the Fed's announcement later in the day, with analysts widely expecting the central bank to keep rates unchanged to avoid triggering a recession. Since March last year, the US monetary policymakers have increased rates 11 times in an attempt to control inflation, which has slowed but remains above the Fed's two-percent target.

Fawad Razaqzada, a market analyst at Forex.com and City Index, stated that investors were more interested in interpreting the central bank's statement and listening to Fed chair Jerome Powell's press conference for any hints about its next steps, including potential future hikes. He pointed out that the market was currently predicting even odds of another rate increase before the end of the year.

A note from Deutsche Bank (ETR:DBKGn) analysts echoed this sentiment, suggesting that Powell would leave open the question of when further tightening could occur and would emphasize a data-dependent approach. The recent surge in crude prices, which neared the $100-per-barrel mark earlier this week, has raised concerns about potential actions by the Fed. However, these prices showed a slight dip on Wednesday.

In addition to the Federal Reserve, several other central banks are scheduled to make rate decisions on Thursday. These include banks in Britain, Switzerland, Sweden, Norway, Turkey, Indonesia, and South Africa.

In particular, attention was drawn to the Bank of England (BoE), which had been expected to raise its own rate again. However, data released on Wednesday revealed that UK inflation unexpectedly hit an 18-month low in August. This development led some to speculate that the BoE might signal that its next hike would be the last for a while, or it might even pause its rate increases. This news caused the British pound to slide to a four-month low at $1.2334.

Looking ahead, traders will also be monitoring the Bank of Japan on Friday. Officials in Tokyo have recently hinted at a potential shift away from their long-standing policy of not raising interest rates, as pressure mounts due to a weakening yen and rising inflation.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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