Market Analysis: Fed Anticipates Interest Rate Cuts, Dollar Gains Momentum

Stocks declined while the dollar surged on Thursday as traders assessed new economic data and anticipated the Federal Reserve's confirmation on Friday to start cutting interest rates. Major U.S. stock indexes fell, especially technology shares. Meanwhile, European shares gained, and oil prices rallied amidst concerns about global demand.

Stocks dropped, and the dollar surged on Thursday as traders processed fresh economic data and awaited the Federal Reserve's anticipated confirmation on interest rate cuts.

The Dow Jones Industrial Average fell 0.43%, the S&P 500 lost 0.89%, and the Nasdaq Composite dropped 1.67%, driven by declines in technology shares.

Fed meeting minutes indicated that most policymakers deemed a rate cut likely in September, aligning with market expectations. Fresh data showed a rise in unemployment claims, suggesting a cooling labor market. A slowdown in U.S. business activity also pointed to an economic deceleration, potentially allowing the Fed to focus more on employment. Interest rates on home loans began dropping, fueling a rebound in home sales. Steve Englander from Standard Chartered Bank mentioned that the Fed's inflation target was within reach, making a significant rate cut possible.

Global stocks, which had recently rebounded from early-month lows, fell 0.6%. In contrast, European shares gained 0.35%, bolstered by retail and healthcare stocks, and surprising strength in euro zone business activity. Oil prices rallied, with U.S. crude and Brent both gaining 1.4%.'

The dollar rebounded from a 13-month low against the euro ahead of Fed Chair Jerome Powell's upcoming speech. Lower U.S. rates would allow central banks globally more flexibility. Interest rate futures projected significant Fed rate cuts ahead, indicating an extended U.S. easing cycle.

U.S. Treasury yields recovered alongside European bond market gains. The 10-year notes' yield rose to 3.862%, while the 2-year note yield climbed to 4.0161%. The euro fell 0.4%, and the pound experienced mixed movements, initially rising before stabilizing. Gold prices also fell over 1% due to the dollar's rebound and higher Treasury yields.

(With inputs from agencies.)