The US Federal Reserve’s policy decision that could shut the door on further rate cuts in the near future roiled markets on Thursday, with currencies, bond yields and equities across the world feeling the heat. The global meltdown saw the Sensex falling almost 1,000 points, the rupee dropping below 85/$ and 10-year bond yield hardening by 4 basis points to 6.79%.
While the Fed reduced its benchmark interest rate by 25 bps, chairman Jerome Powell said, “With this action, we are significantly closer to the end of our easing cycle, but additional adjustments will depend on incoming data and evolving economic risks.”
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Looking ahead, the Fed now anticipates just two 25 bps rate reductions by the end of 2025, down from the four projected in September. This drove the Dow Jones to log its longest losing streak since 1974.
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All three indices in the US—Nasdaq, S&P 500 and Dow Jones—fell over 2.5% each. Even Euro Stoxx, FTSE-100 and CAC 40 were down over 1.4% each.
However, India did better than most major countries. The Sensex fell 1.2% to close at 79,218 points—the first time below 80,000 points since November 29. The Nifty closed at 23,952, down 247 points or 1.02%.
The Sensex has lost 3.55%, or 2,915 points, in the last four trading sessions, eroding investment wealth of over `10 lakh crore (in three sessions).
The rupee, which has been on a steady decline since September 24, when the Fed cut rates for the first time, closed at 85.08/$ (down 0.18%) as the dollar index, which measures the dollar against the basket of six major currencies, hit a 2-year high of 108.07. Many other Asian currencies fared worse, with the Chinese renminbi falling 0.16% while the Indonesian rupiah and Japanese yen declined 1.23% and 1.25%, respectively.
The 10-year bond yield also rose 4 bps to 6.79%, tracking US bond yields that rose 11 bps to 4.51%.
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