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The dollar index (USDX) broke the tight trading range seen since Monday and moved 0.7% higher on Thursday, touching levels last seen three weeks ago.
On Thursday, the long awaited European Central Bank policy meeting concluded with the ending of a long-running monetary stimulus program and statements confirming that it would deliver next month its first interest rate rise since 2011, followed by a potentially larger one in September. While the ECB decision was widely expected, comments of larger scale measures in September weighed on sentiment as the euro zone economy is already trying to cope with weak growth and surging inflation.
Asian shares along with Wall Street shares fell on Thursday, with the Hong Kong 50 index, the Japan 225 and the China A50 losing 1.6%, 0.7% and 1.7% of their value respectively. Market sentiment in Asia as well as the global energy sector have been weighed by renewed Covid restrictions in Beijing and Shanghai as new cases have emerged. Multiple districts in Beijing are shutting down entertainment venues, while most citizens in Shanghai are facing new rounds of mass testing to prevent a new outbreak.
On another note, markets are now anticipating the U.S. consumer price data on Friday that the White House has said it expects to be "elevated". Economists expect annual inflation to be 8.3%, according to a Reuters poll. Other important fundamental releases scheduled for Friday include monthly industrial production from Italy, Unemployment data from Canada, a speech by ECB president Christine Lagarde and later in the day, along with inflation data, the US will also be releasing its University of Michigan consumer sentiment report and the Federal Budget Balance.
The euro broke below the tight trading range seen since the beginning of the week against the dollar, moving 1% lower on Thursday, following a monetary policy statement by the ECB that went as expected, suggesting that the bank plans to raise interest rates by 25 basis points in July.
In other news the U.S, weekly jobless claims showed an increase of 225,000, the highest since mid-January.
Investors now shift their focus on the US inflation reading for May that is due on Friday and is expected to show a modest easing in consumer prices.
Gold prices showed little change on Thursday, edging slightly lower for the day but still trading within the tight range seen since the beginning of the week.
Some pressure in the precious metal came from an increase in demand for 10-year Treasury yields, something that can impact demand for zero-yield investments while at the same time the ECB monetary policy statement went as anticipated and did not bring significant volatility to the precious metal.
Investors will now be watching closely on Friday’s inflation data from the US that could very well be a main driver for gold in the following days as the precious metal is considered a hedge against rising inflation.
The price of WTI posted a moderate decrease of 0.7% on Thursday, after hitting three-month highs the day before, as concerns mount over a new wave of COVID lockdown measures in Shanghai and despite signs of increasing demand in the U.S.
Shanghai and Beijing are once again on COVID alert as parts of China's largest economic hub imposed new lockdown measures and the city announced a round of mass testing for millions of residents.
At the same time, the price of Henry Hub natural gas gained more than 10% on Thursday, nearing record-high levels following a fire at an LNG export terminal in Texas that threatened to cut off a vital supply channel for months. The fire had led to the suspension of exports something that intensifies the current shortage of global gas supplies, where countries are trying to source alternatives to Russian pipeline gas.
The main US stock market indices posted a sharp drop on Thursday, as investors attention is now turned towards the University of Michigan consumer sentiment and inflation expectations. The US 500, the US 30 and the US tech 100 lost more than 2% of their value posting their biggest daily percentage declines since mid-May, with mega-cap growth stocks adding the most pressure.
Apple Inc and Amazon.com Inc fell 3.4% and 2.6%, respectively while Tesla gained more than 3% early in the day only to retrace later on and end the session 0.7% lower despite reports from China showing a solid rebound in May sales and exports as well as a price target boost and upgrade from UBS.
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