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14/09/2023 - 07:54 UTCThe U.S. dollar displayed little volatility on Wednesday, with the dollar index (USDX) ending the session 0.19% higher, right below the 104.8 mark. Price action remains subdued despite CPI data indicating a rise in U.S. inflation, as investors brace for a crucial European Central Bank policy meeting on Thursday.
A potential rate hike in this ECB meeting would result in record level interest rates, however, a pause is also very likely as eurozone’s economy deteriorates. The central bank has raised rates in all its meetings this year and another increase of 25 basis points would reach the rate to 4%, the highest level since the euro was launched in 1999. President Christine Lagarde gave clues of a possible pause this month at her press conference following the last meeting in late July, but Reuters reported on Tuesday that the central bank was set to raise its forecast for inflation next year to more than 3%, seemingly increasing the chances of a hike.
Following an increase in US inventories reported by the EIA on Wednesday, energy prices painted a mixed picture with WTI down by 0.13% while Brent gained by 0.28% for the day. During Wednesday’s session, both oil benchmarks touched 10-month highs as support from a positive demand outlook remains strong and as Saudi Arabia and Russia are extending their output cuts to the end of 2023.
Wall street had quite the positive session yesterday, with all the main US stock indices closing in the green and specifically, the US 500 was up by 1.29%, the US tech 100 rose by a sharp 1.76%, and the US 30 added 0.79% to its value. Part of the move could be attributed to the fact that a positive inflation reading reinforced market expectations that the Federal Reserve will likely keep interest rates unchanged in September.
The majority of megacap stocks saw some sharp gains on the iFOREX platform, some of which are Tesla (+1.46%), Meta Platforms (+1.12%), Microsoft (+1.30%), and Amazon (+2.63). Apple was an exception as its share price declined for a second day in a row, posting losses of 1.22%, after unveiling new iPhones without altering their pricing.
Investors are now looking ahead to upcoming ECB interest rate decision and press conference later in the day, while a significant batch of economic releases is also due from the U.S., including news such as PPI, Retail Sales and Unemployment Claims.
The EUR/USD pair traded within a familiar range and ended the session 0.19% lower as the pair did not affect by the release of US consumer inflation data.
Reports earlier this week suggested that the ECB will raise its inflation forecast for the current year at Thursday's monetary policy meeting, setting the stage for a potential rate hike. The dilemma facing the ECB is whether to hike rates by 25 basis points or implement a pause in the tightening cycle. The press conference with Christine Lagarde will complement the decisions made.
In the US, inflation data came close to market consensus and triggered sharp moves, but ultimately the US Dollar returned to its level before the data release.
Gold inched lower on Wednesday due to a stronger dollar, although growing expectations that the Federal Reserve would leave interest rates unchanged at its policy meeting next week limited downside for the bullion. Gold prices posted a decline of 0.19% ending the session below $1910.00 per ounce.
The dollar index rose against its main rivals after the solid U.S. inflation data, making gold more expensive for other currency holders. The CPI data was largely in line with expectations, hinting that FOMC is expected to hold rates steady.
Oil prices edged lower on Wednesday, as a surprise build in U.S crude inventories offset expectations of tight crude supply for the rest of the year. The WTI contract ended the session 0.13% lower. U.S. crude inventories rose by 4 million barrels last week, confounding analysts' expectations in a Reuters poll for a drop of 1.9 million barrels.
In China, industrial production and retail sales readings are due on Friday, and are expected to offer more insight into the world’s biggest oil importer.
U.S main indices closed higher on Wednesday, following data that showed a moderate increase in consumer prices in August. This has solidified expectations that the Federal Reserve will keep interest rates unchanged in September.
August's data revealed that consumer prices increased at their fastest pace in 14 months due to a surge in gasoline prices. However, the annual rise in underlying inflation was the smallest seen in almost two years. Despite this increase, expectations for interest rate hikes remain uncertain for the rest of the year due to the moderate inflation figures.
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