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The US Federal Reserve, on Wednesday, increased the interest rates by 50 basis points in line with market expectation. The US Federal fund rate now stands at 4.25-4.5 per cent. In addition to this, besides indicating further ongoing rate hikes will be appropriate, Fed Chair Jerome Powel maintained a hawkish stance during the press conference. However, barring a mild sell-off in the equities, broadly the global financial market has remained much unmoved. The US dollar index has risen slightly from the low of 103.45 and is currently at 103.90. The Indian rupee continues to oscillate around 82.50. On the equity side, Sensex and Nifty 50 are down about 0.7 per cent.
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US Federal reserve raises interest rates by 50 bps, highest since 2007
The decision follows four consecutive 75 basis-point hikes that have boosted rates at the fastest pace since Paul Volcker led the central bank in the 1980sMore hikes
The economic forecast released by the Fed showed that more rate hikes are on the cards in 2023. In the last forecast released in September, the Fed had projected the median Fed fund rate to be at 4.6 per cent in 2023. But this has been revised higher. The recent forecast shows that the median fund rate will be at 5.1 per cent in 2023. This means that there could be another cumulative 75-bps rate hike next year. Surprisingly, this hawkish forecast by the Fed has not pushed the dollar and the Treasury sharply higher.
The forecast for the US Personal Consumption Expenditure (PCE), the central bank’s inflation gauge is also revised higher. The Fed projects the PCE to be at 5.6 per cent in 2023, up from 5.4 per cent projected in September.
Technical outlook
Post the Fed decision and commentary, below is a recap on how things stand for major indices and the rupee.
The US dollar index (103.90) continues to remain weak. It has strong resistance around 104.5. The outlook is bearish to see 102.50 on the downside in the short-term. Thereafter, a reversal is possible.
The Indian rupee (82.45) looks mixed and range-bound. Immediate resistance is at 82.35. The domestic currency will have to break this resistance in order to strengthen towards 82 and higher against the dollar. For now, the rupee is stuck between 82.35 and 82.80.
On the equities front, the Nifty (18,538) has good support around 18,500. It will come under pressure for more fall only on a break below 18,500. In that case, it can test 18,400-18,350 in the near-term.
The Dow Jones Industrial Average (33,966) also has very limited downside from here. It has strong support around 33,400. The index will come under danger for a steeper fall to 33,000 only if it breaks below 33,400.
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