**Dow Jones, S&P 500 Slip More Than 1% as Rate Cut Bets Tumble: Focus Turns to US Data Releases**
*By Kenny Fisher | Credit: MarketPulse (marketpulse.com)*
**Overview:**
The US equity and forex markets faced renewed volatility this week as concerns over Federal Reserve policy direction and robust US economic data led investors to recalibrate their interest rate expectations. The Dow Jones Industrial Average and the S&P 500 notably slipped by over 1 percent during Wednesday’s trading session, reacting to a recalibration of market bets for imminent rate cuts. Market participants have now turned their attention towards a series of key US data releases, which are anticipated to shape short-term currency movements and risk sentiment.
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## Fed Policy and Market Sentiment
At the forefront of market dynamics is the Federal Reserve’s posture regarding monetary policy. Over the past few months, investors had priced in the likelihood of multiple rate cuts in 2024, buoyed by signs of moderating inflation and some softening in US economic growth. However, recent statements from Fed officials and a string of resilient economic indicators have challenged this outlook.
**Key Points:**
– The Fed’s latest dot plot and statements from policymakers imply a more cautious approach to rate reductions.
– Strong employment data and sticky inflation have reduced the probability of a near-term cut in the federal funds rate.
– Futures markets show diminished expectations for rate cuts in the coming months, sparking risk-off sentiment in both equity and forex markets.
The recalibration of Fed expectations was evident as traders pared back positions in interest rate-sensitive assets. With the Fed reiterating its data-dependent stance, focus has shifted firmly towards upcoming economic releases, including inflation and employment reports.
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## US Dollar Strengthens as Rate Cut Odds Diminish
The US dollar emerged as a primary beneficiary of the recalibrated policy outlook. As investors scaled back rate cut bets, US Treasury yields rebounded, underpinning the dollar across major pairs.
**Dollar Dynamics:**
– The US Dollar Index (DXY) rebounded above the 105 level midweek, erasing losses sustained earlier as expectations of imminent easing faded.
– The euro and Japanese yen both weakened against the greenback, pressured by widening yield differentials and dovish messaging from their respective central banks.
– Other G10 currencies, particularly commodity-linked dollars such as the Australian and Canadian dollars, also lost ground amid risk aversion and a firmer dollar environment.
The strengthening dollar weighed on global risk sentiment, adding pressure to Wall Street indices and emerging market assets alike.
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## Equities Under Pressure: Dow Jones and S&P 500 Slide
US equity indices, including the Dow Jones and S&P 500, retreated by more than 1 percent during Wednesday’s volatile session. The technology-heavy NASDAQ also faced notable selling pressure.
**Market Reactions:**
– Industrials and financials were among the sectors hit hardest, reflecting rising borrowing costs and concerns about the impact of higher-for-longer rates on profit margins.
– Growth sectors, including technology and communication services, also experienced a pullback as investors trimmed positions in anticipation of more restrictive financial conditions.
– The VIX, Wall Street’s “fear gauge,” spiked higher, signaling elevated market uncertainty.
The retracement in equities comes after a period of record highs for key indices. Investors are now reassessing whether robust earnings can offset the drag from a less-accommodative Fed, especially if inflation proves slow to return to the central bank’s 2 percent target.
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## Major Data Releases in Focus
With the Fed making clear its data-dependence, markets are closely monitoring upcoming US economic releases, which are expected to provide further direction for both equities and forex.
**Key Data Releases to Watch:**
– **Nonfarm Payrolls:** The monthly jobs report remains critical for setting market tone. Any upside surprise in employment figures may reinforce the Fed’s hawkish stance, boosting the dollar and pressuring risk assets.
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