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The U.S. dollar index (USDX) fell sharply on Tuesday, ending the session 1.53% lower, closing right below the 104.0 mark. This move came following the release of the U.S. consumer price data which showed surprisingly softer U.S. inflation numbers, and supported expectations that the Federal Reserve has reached the end of its monetary tightening cycle.
According to the CME Group Fed Watch Tool, the possibility that rates will remain unchanged in December rose 85.7% on Tuesday to 94.5 on Wednesday, while there is a 5.5% chance for a rate hike.
In other news, China's industrial output showed an increase at a pace faster than expected while retail sales also grew more than anticipated, displaying some positive signs for the world's second-largest economy. This turn of events comes after China’s central bank poured liquidity into the banking system earlier Wednesday, in an attempt to boost economic growth.
The main U.S. stock indices moved higher on Tuesday, but also in Europe, the Germany 40 and the France 40 that track the performances of the DAX and the CAC respectively gained by 1.67% and 1.30% on Tuesday, on the back of softer U.S. inflation numbers and a resilient Chinese economy.
Among the main highlights for Wednesday are the U.K. CPI, and PPI reports, eurozone’s industrial production and trade balance data and the US core monthly and annual PPI numbers along with the Empire state manufacturing index and the weekly Crude oil inventories report. On the earnings front, JD.com, XPeng Inc, ZIM Integrated Shipping Service, Target Corp, Cisco Systems, Palo Alto Networks and Sonos are due to release their quarterly reports.
The EUR/USD pair experienced a significant surge on Tuesday ending the day 1.65% higher due to a Dollar selloff triggered by the release of US Consumer inflation data. The pair recorded its largest daily gain in months.
The US Consumer Price Index (CPI) remained unchanged in October, contrary to expectations of a 0.1% increase, and the annual rate rose by 3.2%, below the previous month's 3.7%. Core inflation also slowed more than anticipated.
While the US economy continued to grow above trend, the Eurozone experienced a contraction of 0.1% during the third quarter.
More US inflation data is due today with the release of the Producer Price Index (PPI). Additionally, the October Retail Sales report will be closely watched.
Gold prices gained on Tuesday as the dollar and Treasury yields retreated after softer-than-expected U.S. consumer inflation data, which fuelled more bets that the Federal Reserve may be done hiking interest rates.
Gold prices ended the session on Tuesday above the level of $1962.00 per ounce adding 0.82% daily gain. The market is pricing in a 100% chance that the U.S. central bank will leave rates unchanged in December versus 86% before the inflation report, according to the CME FedWatch tool.
Investors will also keep a tab on the U.S. producer price index data which is due later today.
Oil prices were little changed on Tuesday, paring early gains on signs tensions in the Middle East could be easing and uncertainty about U.S. oil inventories.
US inflation was flat in October, moderating rate hike forecasts, as unchanged price growth for last month prompted investors to bet that the Federal Reserve would be less inclined to tighten monetary policy before the year end.
The IEA lifted its 2023 growth forecast to 2.4 million barrels per day, or bpd, from 2.3 million. For 2024, it raised the forecast to 930,000 bpd from 880,000 bpd.
The U.S. Energy Information Administration (EIA) will release its first oil inventory report in two weeks on Wednesday. EIA did not release a storage report last week due to a systems upgrade.
U.S. main indexes rallied on Tuesday adding huge daily percentage gains as softer-than-expected inflation data supported the view that the Federal Reserve may be done raising interest rates. The US 500 and US Tech 100 rose 2.01% and 2.22% respectively, while US 30 rose by 1.55%.
The softer than expected CPI reading, added to expectations that the Federal Reserve isn’t likely to raise interest rates again.
Big tech was led higher by Alphabet and Meta Platforms as sentiment on growth sectors of the market was supported by dip in Treasury yields. Home Depot rose more than 5% after the retailer reported Q3 results that topped Wall Street estimates.
Target follows with its earnings on Wednesday, while Walmart and Macy’s are scheduled to release their results on Thursday.
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