Stocks in the U.S. exhibit disparity in closing, following the Federal Reserve's reduction of interest rates for the first time in 2025
The Federal Reserve (Fed) made a decision that largely corresponded with market expectations, causing a mixed response from global equities markets.
The Dow Jones Industrial Average closed at 46,018.32, up 0.6%, while the S&P 500 closed at 6,600.35, down 0.1%. The Nasdaq Composite closed at 22,261.33, down 0.3%. In Europe, the CAC 40 closed at 7,786.98, down 0.4% in Paris, and the DAX closed at 23,359.18, up 0.1% in Frankfurt. The FTSE 100 closed at 9,208.37, up 0.1% in London. The Eurozone's common currency, the Euro, decreased against the dollar, with the Euro/dollar exchange rate falling to $1.1811 from $1.1867.
The decision followed economic reports showing weaker job growth. Job gains have slowed, and the unemployment rate has inched up, according to the Fed. Despite the weaker job growth, the dollar initially retreated but later strengthened, which could reflect the market's view that the Fed didn't sound as dovish as markets had hoped.
The Fed Chair, Jerome Powell, stated that the central bank should focus more on the labor market mandate compared to inflation. This statement could have contributed to the later strengthening of the dollar.
In Asia, the Hang Seng Index closed at 26,908.39, up 1.8%, and the Shanghai Composite closed at 3,876.34, up 0.4%. However, the Nikkei 225 closed at 44,790.38, down 0.3% in Tokyo. The strengthening of the dollar could have weighed on the Japanese yen, causing the Dollar/yen exchange rate to increase to 147.00 yen from 146.48 yen.
The decision also had an impact on the crude oil market. West Texas Intermediate crude oil closed at $64.05 per barrel, down 0.7%, and Brent North Sea Crude closed at $67.95 per barrel, down 0.8%.
The Bank of Canada cut its key lending rate as expected, but the focus remained on the Fed's decision. The market expects the Federal Reserve to cut interest rates approximately three times throughout the rest of 2025, with most investors pricing in rate cuts of 25 basis points in each remaining meeting. This is supported by around an 80% probability of a total reduction of 75 basis points for the remainder of the year.
The Pound/dollar exchange rate decreased to $1.3626 from $1.3647, and the Euro/pound exchange rate decreased to 86.70 pence from 86.95 pence. The Fed stated that downside risks to employment have risen, even as inflation has picked up and remains somewhat elevated.
Equities initially strengthened on the decision, but trading was choppy thereafter. The market will continue to monitor economic data and central bank decisions in the coming weeks.
