Fed December Cut Uncertainty Weighs on Risk Sentiment

Market sentiment has turned defensive following Fed Chair Powell's hawkish comments that a December rate cut is 'far from a foregone conclusion.' This statement triggered a sharp repricing in interest rate expectations, with December cut probability falling from 80% to 55% over the past week. The S&P 500 has declined 2.3% since Powell's press conference, while the VIX volatility index jumped to 18.5. The dollar index strengthened 0.8% as traders adjusted positions for potentially higher-for-longer rates. Bond yields surged with the 10-year Treasury climbing 15 basis points to 4.45%. Technical indicators suggest the risk-off sentiment could persist, with major equity indices breaking below key moving averages. Currency markets reflect this shift as safe-haven flows boost USD and JPY against risk-sensitive currencies. Traders should monitor upcoming Fed speakers and economic data for signs of policy direction clarity.