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U.K. Parliamentary Elections, U.K. Construction PMI, U.S. Bank Holiday

calendar 04/07/2024 - 07:52 UTC

The U.S. dollar showed losses against most major currencies on Wednesday, with the dollar index (USDX) down for a second consecutive session to reach below the 105.0 mark ahead of the 4th of July holiday where trading volumes are expected to be low. The decline in the dollar was partly attributed to weaker than expected ADP employment data and a weak purchasing managers index reading on non-manufacturing activity which ramped up concerns regarding slowing growth in the US economy.  Weakness in labor data also fueled expectations of a disappointing jobs report on Friday something that raises bets that the Fed could move into cutting interest rates sooner.

According to the CME FedWatch tool a September rate cut is the most likely scenario with expectations being at 66.5% while bets for a November rate cut follow closely at around 51.9%.

The minutes of the Fed’s June meeting showed policymakers remained unconvinced that inflation was coming down to an extent where rate cuts will be viable. Fed president Jerome Powell warned this week that while the bank had made some progress towards combating inflation, it still lacked the confidence to begin trimming rates. This adds more weight on upcoming data releases that could determine the Fed’s policy going forward.

Wall Street is showing positive momentum, with the U.S. 500 and the U.S. tech 100 jumping to new record highs on Wednesday, as data pointing to a softening economy raised hopes the Federal Reserve could cut interest rates in September. For Thursday, trading volumes are set to remain slim due to the Independence Day holiday.

All eyes now turn to the UK parliamentary elections where voters will elect 650 members to the United Kingdom's Lower House of Parliament, from which a government will be formed. Some price action could also be observed today upon the release of Construction PMI data from the U.K.


The EUR/USD pair posted moderate gains on Wednesday ending the session 0.40% higher after a broad miss in US economic figures hinted at further signs of a weakening US economy, sparking fresh hopes for an accelerated pace of rate cuts from the Federal Reserve.

European data also came in mixed early on Wednesday, with the Purchasing Managers Index (PMI) ticking up to 50.9 MoM in June compared to the forecast hold at 50.8. The EU-wide Producer Price Index contracted more sharply than expected in May. The US ADP Employment Change dropped to 150K in June, down from the previous month's 157K. Additionally, US Initial Jobless Claims increased for the week ending June 28, rising to 238K compared to the previous week's 233K. Finally, the US ISM Services Purchasing Managers Index (PMI) sharply contracted to 48.8 in June, marking its lowest level since June 2020.



Gold prices rose more than 1% to a near two-week high on Wednesday, driven by increased bets for a September interest rate cut by the Federal Reserve after recent U.S. data suggested that the labour market was softening.

First-time applications for U.S. unemployment benefits increased last week. A measure of U.S. services sector activity slumped to a four-year low in June amid a sharp drop in orders, potentially hinting at a loss of momentum in the economy at the end of the second quarter.

Following the U.S. data, the dollar slipped to a two-week low, making gold more attractive for other currency holders, while the yield on the benchmark U.S. 10-year Treasury note slid.



Oil prices gained on Wednesday after a larger-than-expected decline in U.S. crude stocks, but gains were capped by concerns about rising global inventories in thin trading ahead of the U.S. Independence Day holiday.

The U.S. Energy Information Administration (EIA) reported a 12.2 million draw in the country's crude oil barrels in storage last week, which was larger than analysts' expectations in a Reuters poll for a 680,000-barrel draw.

Potential supply disruptions due to Hurricane Beryl have also kept prices elevated, although concerns eased after the U.S. National Hurricane Centre said the storm was expected to weaken by the time it entered the Gulf of Mexico this week.


US 500

The US 500 and US Tech 100 rose on Wednesday to post record high closes, as data pointing to a softening economy raised hopes the Federal Reserve could cut interest rates in September.

The US 30 closed almost unchanged, pressured by selling in healthcare and consumer stocks. The market will stay closed on Thursday for U.S. Independence Day, keeping trading volumes thin throughout the week.

Both the ADP Employment report and weekly jobless claims data pointed to easing labor market conditions ahead of Friday's closely watched non-farm payrolls report. Markets hope signs of weakness in the labor market will encourage the Fed to cut interest rates.

In company news, Tesla jumped more than 6.5%, trading near a six-month high after rising more than 10% on Tuesday following a smaller-than-expected drop in second-quarter vehicle deliveries.

US 500

The materials contained on this document should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. For the full disclaimer click here.

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