* Hawkish FOMC cuts rates by 25bps, signals only two rate cuts in 2025

* USD hits highest since November 2022, up over 1% on the day

* S&P 500 plunged, posting its biggest post-Fed move since March 2020

* Bitcoin dropped by 5%, Gold by 2.3% as yields hit a 4-week high

* BoE and BoJ expected to stand pat on interest rate moves

FX: USD surged north to fresh highs, breaking out of recent bullish consolidation. Guidance was updated signalling a slowing of easing ahead. The Fed’s median dot plot for 2025 was raised, pointing to only two 25bps rate cuts. (3.9% from 3.4% and expected 3.6%).  The 2026 median rose to 3.4% from the prior 2.9% and expected 3.1%. Inflation forecasts were revised higher and unemployment seen at 4.3%. Chair Powell stated the decision was the “right call” and risks are two-sided. There are still a wide range of views with one official seeing no cuts in 2025 and one predicting five 25bps cuts.

EUR sunk over 1.1% to three-week lows. Prices collapsed through the 1.0448 support level and are close to the November spike low at 1.0331.

GBP tumbled below 1.26 as the dollar regained its bullish characteristics courtesy of a hawkish Fed. The November low sits at 1.2486. UK CPI rose with the core up to 3.5% from 3.3% and the all-important services figures unchanged at 5%. This week’s data supports an unchanged rate decision from today’s BoE.

USD/JPY moved higher as it nears the November top at 156.74. The 10-year US Treasury yield surged up tot levels above 4.5% last seen in May. Focus turns tot the BoJ meeting who are expected to sit on their hands at their final meeting of the year ahead of a rate hike early in 2025.

AUD plunged below major support around 0.63 from the lows in October last year. The October 2022 bottom looms at 0.6169. Weak iron ore prices and wider budget deficits being forecast didn’t help. USD/CAD burst higher to fresh highs last seen in March 2020. Pandemic highs are at 1.4690.

US stocks: The S&P500 closed down 2.95% at 5,872. The tech-laden Nasdaq settled 3.6% lower at 21,209. The Dow finished at 42,326, off 2.58%. Sectors were all in the red with Consumer Discretionary plunging 4.75% and weighed on by Tesla falling 8.5%. Healthcare and Consumer Staples were the only sectors down less than 1.5%. The Dow marked its 10^th straight session of declines, that’s its longest loss streak since October 1974. The Dow and S&P500 saw their biggest one-day % drop since the start of August. The Nasdaq suffered its largest one-day sell-off since July.

Asian stocks: Futures are in the red. Asian equities traded mixed after an initial uplift again petered out. The ASX 200 was muted with financials lagging while tech and real estate led the gainers. The Nikkei 225 was subdued in general ahead of the BoJ meeting. But Nissan surged on reports of a potential merger with Honda.  China indices were in the green with little major news flow.

Gold tanked over 2% and through the 100-day SMA at $2605. Next support is the November low at $2536. Higher yields and the dollar did for the precious metal.

Day Ahead – BoJ and BoE Meetings

There’s only around a 20% chance of a rate hike, with expectations having fluctuated a lot in the weeks ahead of this BoJ meeting. GDP upward revisions and higher than expected inflation could cause a surprise move. But the latest sources reports suggested the bank is leaning towards keeping rates steady. BoJ Governor Ueda also recently telegraphed that a hike is on the horizon but remain non-committal about the timing. Other media reports point to the bank seeing little cost in waiting for the next change, citing current price data.

The BoE will keep rates at 4.75% with an 8-1 vote split expected, and Dhingra the lone dissenter. The MPC seems content with cutting rates at every other meeting at a minimum. In fact, this week’s hot wage growth and services inflation data have pushed out the pricing of the next rate cut. We get the next MPR at the next BoE meeting in early February. A moderate and gradual pace of easing is very likely at this stage, with a neutral range at 3-3.5%.

Chart of the Day – USD/JPY nears cycle high

2024 saw prices open around 140, a 38-year high at 161.95 in July, before a near 14% tumble in just 10 weeks back to 140. The dollar and US Treasury yields picked up into the US November election causing another rise in the major. Prices currently sit just below the swing high in November at 156.74. Any pushback to more policy normalisation will see the pair challenge the recent top with more cautious Fed to the fore. A “hawkish pause” by the BoJ could help the yen appreciate after a rollercoaster year. Near terms support sits at 153.40 and then 150.76.