US Dollar strength places pressure on stocks and commodities post FOMC

In the aftermath of the Fed interest rate decision and the press conference that followed, the US30, SPX500 and US100 sold off, with all three stock indices declining by more than 1%.

Although the central bank paused its rate hiking cycle, leaving the key interest rate at 5.5%, it was the press conference that rattled markets. With Fed Chair Jerome Powell maintaining a hawkish stance, the prospects of an additional rate hike at the November meeting bolstered USD strength.

As US policy makers remain committed to achieve its objective inflation target of 2%, higher interest rates for longer has historically resulted in an economic recession.

For Apple Inc, the company with the greatest weighting in the tech heavy US100 lost an additional 2%, closing the day at $175.49. After China announced a ban on Apple phones for government officials at work earlier this month (6 September), prices have continued to decline, bringing the current monthly losses to an estimated 6.7%, contributing to weakness in the US100.

Chart from TradingView

Meanwhile, for European indices, the German 40 (DE40), France 40 (FRA40) and UK 100, have turned cautious in today's session, with focus shifting to the Bank of England rate decision scheduled for 11am UTC. Although analysts had initially priced in a 90% probability of a 25 basis point rate hike, the softer than expected inflation print yesterday placed doubts on whether or not the central bank would follow in the Fed’s footsteps and leave rates at current levels.

GBP/USD technical analysis

In the build up to the BoE rate decision, GBP/USD broke the support level discussed in yesterday’s analysis, forcing prices below the May low of 1.2307. With the current daily low holding just below 1.2304, pushing the RSI (a momentum oscillator that measures the speed and the strength of the trend) further into oversold territory.

If bears are able to push below 1.230, the midpoint of the 2021 high - 2022 low may come into play at 1.229, leaving the door open for bearish continuation toward 1.207.

GBP/USD daily chart

Chart prepared on TradingView

In contrast, if the BoE decides to hike rates and provides a more hawkish tilt, it may be possible for GBP/USD bulls to drive prices back toward the key psychological resistance level of 1.240.