Swaps traders lowered the chance to less than 60% that the central bank reduces rates at their two-day gathering that wraps on Dec. 18 — from roughly 80% a day earlier.
In the last few weeks, broader markets have seen a good run-up, especially the mid and the small-cap stocks, which saw long positions being built up mainly in anticipation of the US Fed rate cut.
An expected rate cut by the US Fed later this week and easing of local inflation numbers prepare the ground for a rate cut by December
Fed Chair has had a tradition of participating in this annual event, and this year's event comes ahead of the crucial September policy where the Fed is widely expected to cut borrowing costs.
The US Fed policymakers expressed apprehensions over the rate-cut timeline as inflation remains above the US central bank's 2 percent target, despite cooling significantly.
The big worry for central banks is a wage-price spiral, where both wages and prices move up in lockstep, forcing rates to move ever higher.
Druckenmiller is not all gloom though. "Despite the challenges we face, there are opportunities for those who can navigate wisely and identify pockets of growth and innovation," he said.
At its last meeting, the US central bank raised funds rate by 25 basis points to a range of 5 to 5.25 percent, the highest since 2007. The Federal Open Market Committee is to meet on June 13
Option data at the end of the day on May 3 suggests a number of hurdles for the index. At the same time support is also present as traders have not taken a definite view on it.
Powell suggested in congressional testimony this month that the Fed could raise rates by as much as half a percentage point in the two-day meeting that ends on Wednesday.
A series of bank failures since then have not only convinced investors and Wall Street economists that policymakers will lift borrowing costs by just a quarter-point Wednesday — some are questioning whether central bankers will raise them at all.
The BSE Sensex fell 329.12 points to 60,343.60 after a weak beginning. The NSE Nifty declined 97.3 points to 17,729.40.
More than the quantum of the hike, the Fed’s guidance about the path ahead for interest rates will steer the markets
The Fed is under pressure to quickly take its policy rate to the neutral level that neither stimulates nor restricts - and beyond.
Financial markets will look to the Federal Open Market Committee meeting for a timeline by which the US central bank will pare its bond holdings, guidance for future rate hikes, forecast on GDP growth and inflation.
On the domestic front, retail inflation data, wholesale inflation numbers, crude oil prices, and FII's behaviour will be key triggers for stock markets in the current holiday-shortened week.
The movement of the rupee, Brent crude and foreign institutional investors would also be crucial for the equity market.
Going forward, equity markets would be a function of economic recovery and sustained liquidity support provided by central banks to support financial markets.
Experts suggest that Gold prices could retest Rs 37,500-37,400 per 10 grams. Silver prices are also expected to remain soft and could retest Rs 46,500-46,200 post the US Fed verdict.
Yellen spoke after the market close Thursday in a much awaited speech that traders had hoped would clarify the central bank's position on rate hikes, after last week's FOMC meeting and a week of volatile markets. Stock traders covered shorts ahead of the 5 pm ET speech, expecting Yellen might give the market a boost.
Global cues are mixed with the US markets closing mixed with Nasdaq slipping to a one-month low, as investors booked profits ahead of the crucial two-day FOMC meeting that begins today.
Karvy has recommended to buy USDINR August near 60.62-60.64 for the target of 61.08 with a stop loss below 60.5, in its research report dated, August 20, 2014.
The Fed is widely expected to take a knife to some of the language in its statement that set an unemployment rate of 6.5 percent as a level to cut rates.
With Janet Yellen subscribing to the continuance of tapering in the last week‘s Senate hearing, FII flows will continue to be on the radar.
Winding up of economic stimulus can spark a sharp sell off in precious metals and most of the market participators expect gold and silver to re-test its yearly lows, says Geojit Comtrade.