European Debt Crisis Fears and U.S. Growth Outlook Concerns Dominate Markets

By FXEmpire.com

U.S. stock markets turned sharply lower on Wednesday, after rising strongly on Tuesday, where the FOMC pledged to keep rates unchanged at exceptionally low levels through mid 2013, and signaled the Fed is ready to use any necessary tools in order to support the economy and boost confidence in markets, which led to speculations the Fed will soon announce QE3.

Nonetheless, the FOMC statement provided a gloomy outlook for the economy, where the Fed signaled that downside risks to the outlook are increasing, while conditions in the labor market seem to have deteriorated, and spending levels are still flat, which all supports the idea that economic growth is slowing down in the world’s largest economy.

Moreover, fears from the European debt crisis continued to dominate markets, as investors are concerned that major economies within the Euro Zone will be facing fiscal difficulties as well, where the European debt crisis could spread to Italy and Spain, the third and fourth largest economies within the Euro Zone respectively.

Stocks in the United States rebounded to the downside by opening on Wednesday, where the Dow Jones Industrial Average was down by nearly 2.50% to trade around 10,960, while the S&P 500 index was down by nearly 2.20% to trade around 1147. European stock indexes were also lower before closing on Wednesday, where FTSE 100 was down by nearly 1% to trade at 5113 and the DAX was down by nearly 1% to trade around 5856.

The U.S. dollar rose back against a basket of major currencies on Wednesday, where the U.S. dollar index was trading at 74.45, compared with the opening level at 74.02. The Euro erased most of Tuesday’s gains against the Dollar, where the EUR/USD pair fell to trade at $1.4230, compared with the opening level at $1.4354, and the British Pound extended its drop against the Dollar after the Bank of England revised its growth and inflation projections lower, where the GBP/USD pair traded around $1.6186, compared with the opening level at $1.6304.

Gold prices continued to rise on Wednesday amid the rising pessimism in markets, which boosted demand for the safe haven, as gold rose to trade around $1772 an ounce slightly below its all time record high, and crude oil prices dropped to trade around $80 a barrel.