The US dollar rose sharply after the Federal Reserve slashed interest rates by 25 basis points. This was the first rate cut since the 2008 financial crisis. It sent a signal that there were risks to the US economy. The dollar rose because the Fed called the rate cut a “mid-cycle adjustment to policy”, rather than the start of a more aggressive cycle of monetary easing. In the following press conference, Jerome Powell said that the Fed would take a more cautious approach to easing, which was viewed as a hawkish statement. 

The Australian dollar stabilized in the Asian session. This is after data from AIG showed that the manufacturing index had risen to 51.3 in July. This was a higher gain than the previous 49.4. In July, the manufacturing PMI rose to 51.6, which was better than the consensus estimate of 51.4. In the second quarter, the export price index rose by 3.8%, which was better than the consensus estimate of 2.8%. Meanwhile, data in China showed some strength. The manufacturing PMI data from Caixin rose to 49.9 from the previous 49.4.

Later today, the market will receive the PMI data from European countries and the United States. In Germany, the manufacturing PMI is expected to have remained unchanged at 43.1 while in Spain the PMI is expected to have increased slightly to 48.1. In the UK, the manufacturing PMI is expected to have declined slightly to 47.7. In the United States, data from ISM is expected to show that the manufacturing PMI declined to 53.4 from the previous 54.5. Meanwhile, the Bank of England will deliver its interest rates decision.

EUR/USD

The EUR/USD pair declined sharply to a low of 1.1030, which was the lowest level since July 2017. On the daily chart below, the pair is below the 25-day and 50-day exponential moving averages. The RSI has moved to the oversold level of 30 while the pair is trading along the lower line of the Bollinger Bands. The pair will likely continue moving lower, although this could change in the coming days as Fed officials react to the market.

XAU/USD

The XAU/USD pair declined sharply in reaction to the Fed decision. The pair reached a low of 1404, which was lower than the YTD high of 1453. On the four-hour chart, the price is below the 25-day and 50-day moving averages. The Relative Strength Index (RSI) and the Relative Vigor Index (RVI) declined to the oversold levels. The pair will likely continue moving lower to test the important support of 1400.

AUD/USD

The AUD/USD pair declined sharply after the Fed delivered its interest rates decision. The pair reached a low of 0.6827. In the Asian session, positive data from China and Australia saw the pair move slightly higher. The pair is below the 25-day and 50-day moving averages while the RSI moved to below the oversold level. The pair could remain in this channel of indecision as a hawkish Fed meets a stronger Australian economy.