S&P 500 climbs to highs, dollar sinks on dovish Powell testimony

Data current as of 3/7/2024

Key points

• S&P 500 bounces back to $5,150: (0:52)
• US yields fall, rate cut odds increase: (2:24)
• Powell’s testimony seen as dovish: (3:37)
• When will the Fed cut rates?: (4:23)
• US dollar weakens on softer Fed: (5:58)

S&P 500 bounces back to $5,150

In a recent turnaround, S&P 500 stocks rebounded from earlier losses this week to approach new all-time highs. This resurgence underscores the robustness of the market's underlying strength, fueled perhaps by optimistic corporate earnings from AI and tech stocks or easing concerns over inflation.

US yields fall, rate cut odds increase

US interest rates have seen a decline, with bond prices moving inversely higher, hinting at an evolving market sentiment towards the Federal Reserve's monetary policy. Bond markets now anticipate a greater likelihood of rate cuts in 2024, reflecting broader expectations of a shift towards more accommodative monetary conditions to support economic growth amidst lingering uncertainties.

Fed Powell testimony seen as dovish

Fed Chair Jerome Powell's recent testimony to Congress was interpreted as dovish by the market, signaling potential lower interest rates in 2024. This perspective suggests a forthcoming period of lower rates and monetary expansion, aimed at bolstering economic activity. Such dovish central bank activities have historically been a precursor to stimulated economic growth but also carry implications for inflation and currency values.

When will the Fed cut rates?

While immediate interest rate cuts at the March FOMC meeting are deemed unlikely, market speculation abounds regarding the timeline for policy easing. Futures markets from the CME are pricing in an 21% chance of a rate cut at the May meeting, with the likelihood increasing to 75% by the June meeting. These forecasts are critical for traders, signaling potential shifts in investment strategies and financial planning.

US dollar weakens on softer Fed

In response to the Federal Reserve's dovish stance, the US dollar has weakened against major currencies, with the EUR/USD and AUD/USD trading comfortably above 1.0900 and 0.6600, respectively. The Japanese yen, too, has seen appreciable gains. This trend highlights the direct impact of central bank policies on forex markets, where expectations of lower US interest rates contribute to a softer dollar relative to other major currencies.

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