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19/09/2024 - 08:00 UTCThe US dollar traded between gains and losses against most of its major peers on Wednesday, with the dollar index (USDX) ending a choppy session with minor gains in a rather volatile session due to the Fed’s interest rate statement. The move came following a majority decision by FOMC members to proceed with a 50 bps rate dropping rates to 4.75%-5.00%. According to Jerome Powell, this decision was driven by a combination of factors, including a cooling labor market, eased inflation, economic resilience and strong consumer spending. Looking ahead, the Fed anticipates the benchmark rate to reach 2.75%-3.00% by the end of 2026. This suggests a gradual easing of monetary policy to support economic growth and maintain price stability.
For the upcoming FOMC meeting in November, the CME's FedWatch tool indicates that the market is currently pricing in a 69.1% chance of a 0.25% interest rate reduction. A larger cut of 0.5% is seen as less likely at 30.9%.
Wall Street's primary indices surged on Wednesday, following the Fed’s aggressive interest rate cut which marked the beginning of an easing cycle in the United States that could provide significant support to the markets. The US 500, the US 30 and the US tech 100 all surged over 1% on Wednesday and continued their upward momentum Thursday morning, with the US 30 and US 500 hitting new all-time highs.
In other news, a series of economic indicators published by the Chinese government over the weekend revealed that industrial production and retail sales expanded at a slower pace than anticipated in August. At the same time, the unemployment rate increased, and residential property prices declined. These developments have intensified concerns regarding a potential economic downturn within the country.
A monetary policy meeting is scheduled from the Bank of England later today where it is expected to keep rates on hold at 5.0% on Thursday. In addition, some price action could be observed later in the session, upon the release of US jobless claims, US existing home sales and the Philly Fed Manufacturing index.
The EUR/USD pair gained momentum on Thursday, climbing back above the 1.1050 mark as a weakening U.S. dollar encouraged a risk-on sentiment across the market.
In August, U.S. PPI inflation increased by 0.2% month-over-month, with core PPI rising to 0.3%. These figures were slightly higher than the market’s expectations, which anticipated a 0.1% uptick in headline PPI and 0.2% for core PPI. Despite the monthly gains, annual PPI inflation figures painted a more favorable picture, with headline PPI easing to 1.7% year-over-year, down from the previous 2.1% and below the expected 1.8%. Core PPI held steady at 2.4% year-over-year, marginally better than the forecasted 2.5%.
Additionally, U.S. Initial Jobless Claims for the week ending September 6 increased slightly to 230,000, in line with expectations, up from the previous week’s revised figure of 228,000.
Gold prices gained 1.85% on Thursday, reaching an all-time high, driven by rising expectations of an interest rate cut by the Federal Reserve next week.
Weaker U.S. economic data signaled a slowing economy, further boosting the appeal of the precious metal.
Market participants are currently pricing in a 73% chance of a 25-basis-point rate cut at the Federal Reserve's September 17-18 meeting, with a smaller 27% chance of a 50-basis-point cut, according to the CME FedWatch Tool.
Lower interest rates make zero-yield assets like gold more attractive to investors seeking safe havens.
Oil prices rose sharply on Thursday, climbing more than 2% as producers evaluated the impact of Hurricane Francine on output in the U.S. Gulf of Mexico. The storm caused significant disruptions in offshore oil production before being downgraded to a tropical storm.
According to the U.S. Bureau of Safety and Environmental Enforcement, over 730,000 barrels per day, or nearly 42% of Gulf of Mexico oil output, was shut down due to the storm's effects.
Oil prices have been under pressure in recent months due to sluggish demand, particularly from top importer China. On Thursday, the International Energy Agency (IEA) further reduced its 2024 global oil demand growth forecast by more than 7%, now projecting an increase of just 900,000 barrels per day.
Wall Street’s main indexes closed higher on Thursday as fresh inflation data bolstered expectations for a 25-basis point rate cut by the Federal Reserve.
In recent weeks, a string of weak employment and economic growth data had led to speculation of a larger 50-basis point rate cut by the Fed. However, those bets diminished following Wednesday’s inflation report. While Thursday’s market saw some fluctuations, traders were still pricing in a 69% probability of a 25-bps rate cut when the Federal Reserve meets on September 17-18, according to CME’s FedWatch Tool.
In Corporate news, Moderna shares dropped 12.4%, hitting their lowest level since November, after the vaccine maker projected sales of $2.5 billion to $3.5 billion for next year—below analysts’ estimates. In contrast, Kroger saw its shares rally 7.2% after the supermarket chain beat second-quarter estimates and raised the lower end of its annual sales forecast.
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