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13/06/2024 - 08:05 UTCThe U.S. dollar posted its biggest decline in a month against other major currencies on Wednesday, with the dollar index (USDX) losing more than 0.5% of its value to drop below the 105.0 mark once again as CPI numbers showed further cooling in inflation and as the Federal Reserve kept its benchmark rate unchanged. What came as a surprise were comments from Fed chairman Powell that the Fed only sees the possibility of one rate cut this year, down from previous forecasts of three. According to comments by Fed chairman Powell, more data is needed in order to gain enough confidence that inflation is indeed cooling and could therefore justify more rate cuts.
According to widely cited CME Fedwatch tool, bets that the Fed will initiate its monetary easing at the September FOMC meeting are at 56.7% while odds for a November rate cut currently stand at 50.7%. Monetary policy odds appear to be changing drastically throughout the year as market conditions and investor expectations change, considering that forecasts earlier this year priced in three rate cuts and that number gradually fell to one.
Positive inflation numbers overshadowed concerns about the Fed's hawkish stance, leading to a surge of optimism in Wall Street as seen in the solid performance of all three main stock indices. The US 500 and the and US tech 100 that track the performance of the S&P 500 and the NASDAQ, hit record highs on Wednesday, as an artificial intelligence-fuelled rally also aided sentiment.
In corporate news, the spotlight was on Oracle, whose stock price surged by more than 13% after announcing partnerships with AI leader OpenAI and Google Cloud, aiming to expand its AI infrastructure. This news, coupled with a positive revenue forecast for fiscal year 2025, fuelled investor enthusiasm. Apple is also moving higher into positive territory, riding the wave of AI optimism and temporarily surpassing Microsoft’s market capitalization. This follows a 7% jump on Tuesday as investors cheered the tech giant's plans to enter the AI arena.
On Thursday, some price action could be observed upon the release of US producer prices, weekly jobless claims and a speech by Treasury secretary Yellen at the Economic Club of New York.
The EUR/USD pair posted huge gains on Wednesday, climbing 0.68% after broad-market risk appetite surged following a cooler-than-expected print in US Consumer Price Index (CPI) inflation, but a hawkish tilt to the Federal Reserve’s latest update to its dot plot of interest rate expectations crimped market sentiment to round out the day.
According to the Federal Open Market Committee (FOMC) and its Summary of Economic Projections (SEP), only a single quarter-point rate cut is now expected in 2024.
Eurogroup meetings on Thursday and Friday, pan-European Industrial Production figures, and several speeches from European Central Bank (ECB) policymakers will wrap up the trading week’s Euro events, while US jobless claims and the Michigan Consumer Sentiment Index will provide perspective after the Fed’s latest rate call.
Gold prices ended the session with gains for a third consecutive session as consumer prices cooled more than expected in May, which, according to some economists, could give the Federal Reserve some room to ease interest rates this year.
The Consumer Price Index (CPI) was unchanged last month after April’s 0.3% increase, the U.S. Bureau of Labor Statistics said on Wednesday. The report said that in the last 12 months, headline inflation rose 3.3% At the same time, core CPI, which strips out volatile food and energy prices increased 0.2%, also missing expectations.
Oil prices settled higher Wednesday, as a cooler inflation report supporting rate-cut hopes, but gains were kept by an unexpected build in weekly domestic crude supplies and hawkish Federal Reserve projections calling for a fewer ate cuts.
Official inventory data showed crude inventories gained 3.7M barrels in the week through Jun. 7, confounding expectations for a draw of 1.2M barrels. As well as crude supplies, gasoline and distillate stocks also rose 2.6M and 881,000 respectively, denting hopes that U.S. fuel consumption was picking up with the onset of the travel-heavy summer season.
The US 500 and US Tech 100 posted record closing highs for a third straight day on Wednesday after inflation data came in softer than expected but the indexes ended off the day's highs as the Federal Reserve projected only one interest rate cut this year.
Stocks opened higher after the Labor Department reported that the U.S. Consumer Price Index was unexpectedly unchanged in May due to cheaper gasoline. Just after the CPI report, traders boosted bets for a Fed rate cut by September and another by December. But Chair Jerome Powell surprised markets by stating that the central bank was now set to cut rates only once this year, down from a prior estimate in March for three cuts. Producer price index inflation data is due today and is set to offer more cues on overall inflation.
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