Cautious Optimism Ahead of the Rate Reversal: DAX Enters the Fed Showdown Strengthened!
The German benchmark index presented itself in robust condition ahead of the historic monetary policy decision in the US. On Wednesday, the DAX closed with a gain of 0.5 percent at 25,537 points. Since Xetra trading already ended at 5:30 p.m., this closing level reflects investors' cautiously optimistic anticipation, as the Federal Reserve's decision did not follow until late evening at 8:00 p.m. In the run-up to the announcement, a slight easing emerged on the bond markets, where yields saw a moderate decline in late trading.
Historic Rate Move in the US: Fed Hikes Key Rate Despite Political Headwinds!
In the evening, the US central bank delivered the decision widely expected by the financial markets: Policymakers raised the key interest rate by 25 basis points to a target range of 3.75 to 4.00 percent—the first rate hike since 2023. Driven by stubbornly high core inflation, this move was highly priced in on the trading floor recently. At the press conference, Fed Chair Kevin Warsh unequivocally defended the measure, citing persistently elevated inflation alongside a robust US economy. The monetary policy decision fell into an extremely charged political environment ahead of the US midterm elections. US equity markets, as well as non-yielding assets like gold and Bitcoin, reacted with slight losses in late US trading.
Double Rate Showdown on Thursday: How Will the DAX Digest the Central Bank Impulse?
Since regular floor trading in Frankfurt had already ended when the rate announcement was made, the DAX will not process the full impact of the decision until Thursday morning. The start of trading will be under a dual central bank influence, as the Bank of England will simultaneously decide on its key rates on Thursday. Investors' primary focus now shifts to interpreting the rhetorical signals regarding the future rate path: Will market participants view the hike as a one-off move, or as the prelude to further rate increases late in the year? The core question for Thursday is: Will the DAX manage to continue its recovery despite the US rate reversal, or will the central bank double-whammy trigger renewed nervousness?
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